As filed with the Securities and Exchange Commission on October
16, 1998
File Nos. 333-59185 and 811-08873
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. ___ [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 1 [X]
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
(Exact Name of Registrant as Specified in Charter)
2000 Classen Center
Oklahoma City, Oklahoma 73106
(Address of Principal Registrant's Telephone
Executive Offices) Number: (405) 523-2000
Stephen P. Garrett Copy to:
Senior Vice President
Law and Government Affairs Connie S. Stamets, Esq.
American Fidelity Assurance McAfee & Taft
Company A Professional Corporation
2000 Classen Center 10th Floor, Two Leadership Square
Oklahoma City, Oklahoma 73106 Oklahoma City, Oklahoma 73102
(Name and Address of Agent
for Service)
Approximate Date of Proposed
Public Offering: As soon as practicable after
effectiveness of the
Registration Statement
It is proposed that this filing will become effective (check
appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new
effective date for a previously filed post-effective amendment.
Title of Securities Being Registered: common stock, par value
$0.001
The Registrant hereby amends this Registration Statement under
the Securities Act of 1933 on such date or dates as may be
necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may
determine.
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495
N-1A
Item No. Item Caption
- -------- ----- -------
PART A INFORMATION REQUIRED IN PROSPECTUS
1 Cover Page Cover Page
2 Synopsis Not Applicable
3 Condensed Financial Information Condensed Financial
Information
4 General Description of Registrant Description of the Fund;
Other Information
5 Management of the Fund Management
5A Management's Discussion of Fund
Performance Not Applicable
6 Capital Stock and Other Securities Dividends, Distributions
and Taxes; Other
Information
7 Purchase of Securities Being
Offered Offering, Purchase and
Redemption of Shares
8 Redemption or Repurchase Offering, Purchase and
Redemption of Shares
9 Pending Legal Proceedings Not Applicable
PART B INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
10 Cover Page Cover Page
11 Table of Contents Table of Contents
12 General Information and History Introduction; Capital
Stock
13 Investment Objectives and Policies Investment Objectives
and Policies; Portfolio
Transactions
14 Management of the Fund Management
15 Control Persons and Principal
Holders of Securities Management
16 Investment Advisory and Other
Services Investment Advisory and
Other Services;
Custodian, Independent
Accountants and Counsel
17 Brokerage Allocation and Other
Practices Portfolio Transactions
18 Capital Stock and Other Securities Capital Stock
19 Purchase, Redemption and Pricing
of Securities Being Offered Capital Stock
20 Tax Status Federal Tax Matters
21 Underwriters Not Applicable
22 Calculation of Performance Data Calculation of
Performance Data
23 Financial Statements Not Applicable
Information required to be included in Part C is set
forth under the appropriate Item, so numbered, in Part
C of this Registration Statement.
<PAGE>
PROSPECTUS __________, 1998
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
2000 Classen Center
Oklahoma City, Oklahoma 73106
Telephone: (405) 523-2000
American Fidelity Dual Strategy Fund, Inc. (the "Fund") is an
open-end management investment company. The Fund seeks long-term
capital growth which the Fund endeavors to achieve through a
diversified investment portfolio consisting primarily of common
stock. A secondary objective of the Fund is the production of
income.
Shares of the Fund are offered only to separate accounts of
American Fidelity Assurance Company (the "Company") to fund the
benefits of variable annuity contracts. Individuals may not
purchase Fund shares directly from the Fund. Each variable
annuity contract involves fees and expenses not described in this
Prospectus. See the accompanying variable annuity contract
prospectus for information regarding contract fees and expenses
and any restrictions on purchases or allocations.
Pursuant to an investment advisory agreement and subject to the
authority of the Fund's Board of Directors, the Company serves as
the Fund's investment adviser and conducts the business and
affairs of the Fund. The Company has engaged Lawrence W. Kelly &
Associates, Inc. ("Kelly") and Todd Investment Advisors, Inc.
("Todd Investment") to act as the Fund's sub-advisers to provide
the day-to-day portfolio management for the Fund. Kelly and Todd
Investment are referred to together as the "Sub-Advisers."
This Prospectus contains concise information about the Fund that
a prospective purchaser of a variable annuity contract should
know before allocating purchase payments or premiums to the Fund.
It should be read in conjunction with the prospectus for the
variable annuity contract and should be retained for future
reference. A statement of additional information (the "Statement
of Additional Information") containing more detailed information
about the Fund is available free by writing to the Fund at P. O.
Box 25523, Oklahoma City, Oklahoma 73125-0523, or by calling
(800) 654-8489. The Statement of Additional Information, which
has the same date as this Prospectus, as it may be supplemented
from time to time, has been filed with the Securities and
Exchange Commission and is available along with other related
materials on the SEC's Web site (http://www.sec.gov). The
Statement of Additional Information is incorporated herein by
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus should be read in conjunction with the prospectus
for the variable annuity contract.
Mutual fund shares are not deposits or obligations of, or
guaranteed or endorsed by, any bank, nor are fund shares
federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
Investing in fund shares involves certain investment risks,
including possible loss of principal.
TABLE OF CONTENTS
Page
CONDENSED FINANCIAL INFORMATION
DESCRIPTION OF THE FUND
General
Investment Objectives and Policies
Investment Considerations and Risks
State Insurance Regulation
MANAGEMENT
Directors and Officers
Investment Adviser
Investment Sub-Advisers
Expenses
Custodian
PERFORMANCE INFORMATION
DETERMINATION OF NET ASSET VALUE
OFFERING, PURCHASE AND REDEMPTION OF SHARES
DIVIDENDS, DISTRIBUTIONS AND TAXES
OTHER INFORMATION
<PAGE>
CONDENSED FINANCIAL INFORMATION
AS OF THE DATE OF THIS PROSPECTUS, THE FUND HAD NOT YET
COMMENCED OPERATIONS, HAD NO ASSETS OR LIABILITIES, HAD INCURRED
NO EXPENSES AND HAD RECEIVED NO INCOME. ACCORDINGLY, NO
CONDENSED FINANCIAL INFORMATION IS INCLUDED FOR THE FUND IN THIS
PROSPECTUS.
DESCRIPTION OF THE FUND
General
The Fund is the successor to American Fidelity Variable Annuity
Fund A ("Variable Annuity Fund A"), a separate account of the
Company which operated as an open-end diversified management
investment company from 1968 to 1998. Effective January 1, 1999, it
was converted to a unit investment trust separate account and
renamed American Fidelity Separate Account A ("Separate Account
A"), and it transferred its investment portfolio to the Fund in
exchange for Fund shares (the "Reorganization"). Through this
Prospectus, the Fund is offering its shares to separate accounts
of the Company, initially only Separate Account A, to fund
benefits under variable annuity contracts issued by the Company.
The separate prospectus which accompanies this Prospectus
describes the variable annuity contracts.
As long as the Fund offers its shares only to separate accounts
of the Company, the Company will be the sole shareholder of the
Fund. Thus, the terms "shareholder" and "shareholders" refer to
the Company. The rights of the Company as a shareholder should
be distinguished from the rights of an owner of a variable
annuity contract funded by Fund shares. The Company will pass
through voting rights to variable annuity contract owners, but
contract owners are not shareholders of the Fund.
Investment Objectives and Policies
The Fund's primary investment objective is to seek long-term
growth of capital through investment in a diversified portfolio
of securities, primarily common stock. The production of income
is a secondary investment objective. Such objectives do not
preclude investments from time to time for short-term capital
appreciation. There can be no assurance that the Fund will
achieve its investment objectives. As with any security, a risk
of loss, including possible loss of principal, is inherent in an
investment in shares of the Fund.
In order to achieve its investment objectives, the Fund normally
invests in a diversified portfolio consisting primarily of common
stocks based upon an assessment of particular industries or
companies. Through its two Sub-Advisers, the Fund uses both a
growth and a value-oriented strategy to manage its investments.
Kelly is a growth stock manager. Its strategy is to invest in
high-quality companies with strong earnings growth and superior
product leadership. Todd Investment is a value-oriented manager.
It emphasizes a diversified portfolio of predominantly
undervalued, large capitalization, high quality equity
securities. Todd Investment seeks to include in the Fund's
portfolio companies which indicate the presence of some catalyst
for change.
The Fund is classified as "diversified," as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). The
investment objectives and classification of the Fund may not be
changed without the approval of the holders of a majority of the
outstanding shares of the Fund. The Company has adopted a number
of restrictions and policies relating to the investment of its
assets and its activities which are fundamental policies and also
may not be changed without the approval of the holders of a
majority of outstanding Fund shares. See the Statement of
Additional Information for a complete description of such
restrictions and policies.
The following are fundamental policies of the Fund. The Fund
invests not more than 5% of its assets in any one issuer, except
obligations of the United States Government and instrumentalities
thereof, and will acquire not more than 10% of the voting
securities of any one issuer. In addition, the Fund invests not
more than 25% of the Fund's assets in any one industry and not
more than 10% of the Fund's assets in real estate (including real
estate investment trusts) and illiquid securities. The Fund may invest
up to 35% of its assets in equity securities of foreign issuers in the
form of American Depositary Receipts ("ADRs"), other depositary receipts
or ordinary shares if U.S. dollar denominated and publicly traded
in the United States. Investments in companies of any one
foreign country are limited to not more than 20% of Fund assets.
The Fund does not engage in the purchase or sale of puts, calls or other
options or in writing such options. Although not a fundamental policy,
the Fund does not invest in tobacco-producing companies.
The Fund's Sub-Advisers may determine that prevailing market and
economic conditions indicate investment in other than common
stocks may be advantageous, in which event investments may be
made on a short-term basis in securities which are a direct
obligation or guaranteed by the United States Government or in
bonds, notes or other evidences of indebtedness, issued publicly
or privately, of a type customarily purchased for investment by
institutional investors. Such nongovernmental investments may be
convertible into stock or may be accompanied by stock purchase
options or warrants for the purchase of stock. The Fund is
normally fully invested, apart from cash balances needed to meet
redemptions. The Fund's assets may be held in cash equivalents
or securities which are direct obligations of the United States
Government for this purpose.
Investment Considerations and Risks
General. The Fund's net asset value per share should be expected
to fluctuate. Investors should consider the Fund as a supplement
to an overall investment program and should invest only if they
are willing to undertake the risks involved. Achievement of the
Fund's investment objectives cannot be assured due to the risks
of loss of capital or income inherent in any investment in equity
securities and the special risks associated with investing in the
equity securities of foreign corporations.
Equity Securities. Although equity securities have a history of
long-term growth, they fluctuate in value based on changes in an
issuer's financial condition and results of operations and often
based on factors unrelated to the value of the issuer of the
securities. Such fluctuations can be pronounced. Changes in the
value of the Fund's investments will result in changes in the
value of Fund shares and thus the Fund's total return to
investors.
Foreign Securities. Since the stocks of some foreign issuers are
included in the Fund's portfolio, the Fund is subject to
additional investment risks with respect to those securities that
are different in some respects from those incurred by a fund
which invests only in securities of domestic issuers. Such risks
include exposure to fluctuations in foreign currencies, less
publicly available information, nonuniform accounting, auditing
and financial reporting standards, less liquidity and more
volatility, foreign withholding or other taxes, and possible
adverse political and economic developments, seizure or
nationalization of foreign deposits or adoption of governmental
restrictions which might adversely affect or restrict the payment
of principal and interest on the foreign securities to investors
located outside the country of the issuer, whether from currency
blockage or otherwise. The Fund's foreign investments are
normally in the form of ADRs. ADRs are certificates issued by a
U.S. bank or trust company and represent the right to receive
securities of a foreign issuer which are deposited in a domestic
bank or foreign branch of a U.S. bank. ADRs are traded on a U.S.
exchange or in the over-the-counter market. Investment in ADRs
has certain advantages over direct investment in the underlying
foreign securities. ADRs are U.S. dollar-denominated investments
that are easily transferable and for which market quotations are
readily available. Also, issuers whose securities are
represented by ADRs generally provide more financial information
than non-ADR foreign issuers.
Year 2000 Risks. Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be
adversely affected if the computer systems used by the Company
and the Fund's other service providers do not properly process
and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000
Problem." The Company has had a formal project team (including 22
information systems professionals) working to correct the problem since
1996. In the briefest terms, the correction is to change all date
related fields in the Company's computer systems to four digits instead
of two digits. At the same time, all relationships with systems outside
the Company must be checked for the same change and all must be tested to
determine that relationships continue to be compatible. Those systems
tested on December 31, 1997 and went through year-end processing without
incident. The final test of all systems will be run on December 31, 1998.
Even though management of the Company is expending considerable resources
in a concerted effort to meet this technology-related threat, there is no
guarantee that there will be no adverse impact on the Fund of some sort as
January 1, 2000 passes.
State Insurance Regulation
The Fund is a funding vehicle for variable annuity contracts to
be offered by insurance companies and will seek to be offered in
as many jurisdictions as possible. Certain states have
regulations or guidelines concerning concentration of investments
and other investment techniques. If such regulations and
guidelines are applied to the Fund, the Fund may be limited in
its ability to invest in certain types of securities. The Fund
intends to operate in material compliance with current insurance
laws and regulations, as applied, in each jurisdiction in which
the Fund is offered.
MANAGEMENT
Directors and Officers
The Fund's Board of Directors is responsible for overseeing the
management of the Fund, including the establishment and
supervision of the Fund's investment policies and objectives,
reviewing and approving the Fund's contracts and other
arrangements and monitoring Fund performance and operations. The
officers of the Fund supervise its daily business operations.
The Statement of Additional Information contains information as
to the identity of, and other information about, the directors
and officers of the Fund.
Investment Adviser
The Company, located at 2000 Classen Center, Oklahoma City,
Oklahoma 73106, is the investment adviser of the Fund. The
Company is a stock life insurance company incorporated in the
state of Oklahoma in 1960. The Company acted as investment
adviser to Variable Annuity Fund A, the Fund's predecessor, from
1968 until the Fund acquired its investment portfolio as a result of
the Reorganization. The Company is a wholly owned subsidiary of American
Fidelity Corporation, which is itself controlled by Cameron Enterprises,
A Limited Partnership ("CELP"). The general partners of CELP are
Cameron Associates, Inc., Theodore M. Elam and, in their
capacities as trustees, William E. Durrett, Edward C. Joullian,
III, John W. Rex and the Bank of Oklahoma, N.A. In accordance
with the CELP partnership agreement, management of the affairs of
CELP is vested in five managing general partners: William M.
Cameron and Messrs. Durrett, Joullian, Rex and Elam.
The Fund has entered into a Management and Investment Advisory
Agreement with the Company under which the Company assumes
overall responsibility, subject to the supervision of the Fund's
Board of Directors, for administering all operations of the Fund
and for monitoring and evaluating the management of the assets of
the Fund by the Sub-Advisers on an ongoing basis. The Company
had the same management and investment advisory responsibility
for the Fund's predecessor under a similar agreement first
entered into in 1973. The Company provides or arranges for the
provision of the overall business management and administrative
services necessary for the Fund's operations and furnishes or
procures any other services and information necessary for the
proper conduct of the Fund's business. The Company also acts as
liaison among, and supervisor of, the various service providers
to the Fund.
For its services to the Fund, the Company receives an annual
management and investment advisory fee of 0.50% of the average
daily net assets of the Fund. The fee is deducted daily from the
assets of the Fund.
Investment Sub-Advisers
The Company has engaged Kelly and Todd Investment as Sub-
Advisers. Subject to the fundamental investment objectives and
policies of the Fund and any other guidelines provided by the
Company, each Sub-Adviser has complete discretion and authority
in the investment and reinvestment of the Fund assets under its
management. The Company has allocated Fund assets equally
between Kelly and Todd Investment on an annual basis and will
review the asset allocation between Sub-Advisers at least
annually. Each Sub-Adviser determines what securities are
acquired, held or disposed of and, subject to any instructions
from the Company as to the Fund's cash requirements from time to
time, the portion of Fund assets which will be held uninvested.
The Sub-Advisers are also authorized to exercise all voting
rights pertaining to the Fund assets they manage. The Sub-
Advisers are authorized to select brokers to effect securities
transactions on behalf of the Fund. Neither Sub-Adviser nor any
of their respective affiliates may act as a broker with respect
to securities transactions for the Fund.
Kelly has provided the Company research and investment advice
since 1985. Beginning in the fourth quarter of 1995, Kelly's
services relating to Fund assets (including the assets of the
Fund's predecessor) have been rendered pursuant to its sub-
advisory agreement with the Company, and its services relating to
other assets managed by the Company have been provided under a
separate consulting agreement. Lawrence W. Kelly, the chairman,
chief executive officer, treasurer and founder of Kelly, has 31
years of experience in the investment advisory business and he
and his wife, Janice M. Kelly, are the majority shareholders of
Kelly. Mr. Kelly has primary responsibility for the day-to-day
management of the Fund's portfolio managed by Kelly. From 1980
to 1985, Mr. Kelly was chairman of Webster Management
Corporation, an investment advisory firm which provided
investment advice to the Company. In addition, Mr. Kelly was a
vice president (1974 to 1988) and director (1981 to 1985) of
Kidder, Peabody & Co., Inc. and the chairman of five mutual funds
managed by Webster and Kidder from various dates between 1981 and
1984 until 1986. As of December 31, 1997, Kelly managed 50
client securities portfolios on a discretionary basis with an
aggregate market value of $396 million. It also managed or
supervised 16 client securities portfolios on a non-discretionary
basis with an aggregate market value of $992 million. Kelly has
not acted as an investment adviser to any investment company
registered under the 1940 Act other than the Fund and its
predecessor. Kelly is located at 200 South Los Robles Avenue,
Suite 510, Pasadena, California 91101.
Todd Investment has 30 years of experience managing investments
for institutional clients. At December 31, 1997, Todd Investment
managed over $2.7 billion for 50 clients, of which $1.2 billion
represented equity assets. Todd Investment generates all of its
revenues from fee-based investment counseling and employs six
portfolio managers. The primary portfolio manager for the Fund
assets managed by Todd Investment is Robert Bordogna, who has
been with Todd Investment since 1980 and in the business for 28
years. The backup portfolio manager is Curtiss M. Scott, Jr.,
who has been with Todd Investment since 1996, in the business for
19 years and is a chartered financial analyst. Prior to joining
Todd Investment, Mr. Scott was a partner and managing director of
Executive Investment Advisors, Inc. in Louisville, Kentucky.
Todd Investment has not acted as an investment adviser to a
registered investment company other than the Fund and its
predecessor. Todd Investment is located at 101 South Fifth
Street, Suite 3160, Louisville, Kentucky 40202 and, since
December 1993, has been an indirect wholly-owned subsidiary of
Stifel Financial Corporation, a financial services holding
company based in St. Louis, Missouri.
The fees of the Sub-Advisers are paid by the Company. Kelly
receives an annual fee of .30% of Fund assets under its
management. Todd Investment receives an annual fee of .38% of
Fund assets under its management or $50,000, whichever is
greater. The Sub-Advisers' fees are payable quarterly and, when
based on Fund assets, are calculated on the value of Fund assets
on the last trading day of each calendar quarter.
Expenses
The Fund pays the Company's management and investment advisory fee,
which has the effect of reducing investors' return. The Company
pays all other expenses of the Fund except investment transaction
costs. The Fund will not reimburse the Company at a later time for
any such amounts. The yield to investors increases to the extent that
the Fund does not bear all of its expenses.
In allocating brokerage transactions, the Sub-Advisers seek to
obtain the best execution of orders at the most favorable net
price. Subject to this determination, the Sub-Advisers may
consider, among other things, the receipt of research services as
a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund. See "Portfolio Transactions" in the
Statement of Additional Information.
Custodian
InvesTrust, N.A., 6301 N. Western, Suite 210, Oklahoma City,
Oklahoma 73118, is the custodian of the Fund's portfolio
securities.
PERFORMANCE INFORMATION
For the purpose of advertising, performance is calculated on the
basis of average annual total return and/or total return.
Average annual total return is calculated pursuant to a
standardized formula which assumes that an investment in the Fund
was purchased with an initial payment of $1,000 and that the
investment was redeemed at the end of a stated period of time,
after giving effect to the reinvestment of dividends and
distributions during the period. The return is expressed as a
percentage rate which, if applied on a compounded annual basis to
the original investment, would result in the redeemable value of
the investment at the end of the period. Advertisements of the
Fund's performance will include the Fund's average annual total
return for one, five and ten year periods.
Total return is computed based on an original $1,000 investment and
assumes the reinvestment of dividends and distributions. Total return
generally is expressed as a percentage rate which is calculated
by combining the income and principal changes for a specified
period and dividing by the net asset value per share at the
beginning of the period. Advertisements may include the
percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes
the application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. Performance
information, such as that described above, may not provide a
basis for comparison with other investments or other investment
companies using a different method of calculating performance.
As the successor to the Company's Variable Annuity Fund A, the
Fund treats the historical performance data of Variable Annuity
Fund A as its own for periods prior to the Reorganization. See
"Description of the Fund" on page 3. The performance data for
the Fund prior to the Reorganization assume that the charges
currently imposed by the Fund were in effect during that period.
Such performance data do not reflect any sales or insurance
charges that were imposed under the annuity contracts issued
through Variable Annuity Fund A.
Since the Fund is not available directly to the public, its
performance data will not be advertised unless accompanied by
comparable data for a participating separate account. The Fund's
performance data do not reflect separate account or contract
level charges.
The Fund's average annual total return and total return should
not be compared with other funds that offer their shares directly
to the public since the figures provided do not reflect charges
of participating separate accounts. In addition, the Fund's
total return should be distinguished from the rate of return of a
participating separate account, which rate will reflect the
deduction of additional charges, including mortality, expense
risk and sales charges, and therefore will be lower. Contract
owners should consult the prospectus for such contract.
The investment results of the Fund will fluctuate over time and
any presentation of investment results for any prior period
should not be considered a representation of what an investment
may earn or what the Fund's performance may be in any future
period. In addition to information provided in shareholder
reports, the Fund may, in its discretion, from time to time make
a list of the Fund's holdings available to investors upon
request.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is normally determined
once daily as of the close of regular trading on the New York
Stock Exchange, currently 4:00 p.m. Eastern Time, on each day the
Company is open for business. The Company is scheduled to be open
Monday through Friday throughout the year, except for the following
holidays: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and the immediately following Friday, and Christmas
Day. On any day when the Company is open for business and the New
York Stock Exchange is not (presently Martin Luther King, Jr. Day,
Washington's Birthday and Good Friday), the Fund values its portfolio
securities for which current-day prices are not available using the
same prices included in the determination of net asset value on the
immediately preceding business day. Net asset value per share
of the Fund is determined by dividing the value of the Fund's
securities, cash, and other assets (including accrued but
unallocated interest and dividends), less all liabilities
(including accrued expenses but excluding capital and surplus) by
the number of shares of the Fund outstanding.
The value of the Fund's securities and assets, except certain
short-term debt securities, is determined on the basis of their
market values. Short-term debt securities having remaining
maturities of less than one year are valued by the amortized cost
method, which approximates market value. Equity securities held
by the Fund are valued at the last sales price on a national
securities exchange or the Nasdaq National Market or, lacking any
sales, at the last reported bid price. Over-the-counter
securities not quoted in the Nasdaq National Market are valued at
the reported bid price. Investments for which market quotations
are not readily available, if any, are valued at their fair
market value as determined in good faith by the Board of
Directors.
OFFERING, PURCHASE AND REDEMPTION OF SHARES
Fund shares currently are offered only to one or more separate
accounts of the Company. Individuals may not place purchase or
redemption orders directly with the Fund.
Pursuant to a participation agreement between the Fund and the
Company, Fund shares are sold on a continuous basis to the
Company. The Company, on behalf of participating separate
accounts, places orders based on, among other things, the amount
of premium payments to be invested pursuant to separate account
variable annuity contracts. See the prospectus of the applicable
separate account for more information on the purchase of Fund
shares. Participating separate accounts purchase and redeem Fund
shares at net asset value without sales or redemption charges.
For each day on which the Fund's net asset value is calculated,
the Company will transmit to the Fund any orders to purchase or
redeem shares of the Fund based on the purchase payments,
redemption (surrender) requests, and transfer requests from
contract owners, annuitants and beneficiaries of participating
separate accounts that have been processed on that day. If an
order is received by the Company by 3:00 p.m. Central Time on any
business day and transmitted to the Fund by 9:00 a.m. Central
Time on the next business day, Fund shares will be purchased or
redeemed at the net asset value determined as of the day the
order was received by the Company. Otherwise, Fund shares will be
purchased or redeemed at the net asset value determined on the next
business day. No charges are imposed by the Fund when shares are
redeemed.
The Fund ordinarily will make payment for all shares redeemed
within seven days after receipt of a redemption request in proper
form, except as provided by the rules of the Securities and
Exchange Commission.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund ordinarily declares and pays dividends from net
investment income at least once a year and automatically
reinvests them in additional Fund shares at net asset value.
The Fund makes distributions from net realized securities gains,
if any, once a year, but may make distributions on a more frequent
basis to comply with the distribution requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), in all events in a
manner consistent with the provisions of the 1940 Act. The Fund will
not make distributions from net realized securities gains unless
capital loss carryovers, if any, have been utilized or have
expired. If all shares in an account are redeemed at any time,
all dividends to which the shareholder is entitled will be paid
along with the proceeds of the redemption. All expenses are
accrued daily and deducted before declaration of dividends to
investors.
Section 817(h) of the Code requires that the investments of a
segregated asset account of an insurance company be "adequately
diversified" as provided therein or in accordance with U.S.
Treasury Regulations, in order for the account to serve as the
basis for variable annuity contracts. Section 817(h) and the
U.S. Treasury Regulations issued thereunder provide the manner in
which a segregated asset account will treat investments in a
regulated investment company for purposes of the diversification
requirements. If the Fund satisfies certain conditions, a
segregated asset account owning shares of the Fund will be
treated as owning multiple investments consisting of the
account's proportionate share of each of the assets of the Fund.
The Fund intends to satisfy these conditions so that the shares
of the Fund owned by a segregated asset account will be treated
as multiple investments. Further, the Fund intends to satisfy
the diversification standards prescribed under Section 817(h) for
segregated accounts. By meeting these and other requirements,
the Company, rather than variable annuity contract holders,
should be subject to tax on distributions received with respect
to Fund shares. The tax treatment on distributions to the
Company will depend on the Company's tax status.
Notice as to the tax status of dividends and distributions will
be mailed to shareholders annually. Dividends derived from net
investment income, together with distributions of net realized
short-term securities gains and all or a portion of any gains
realized from the sale or other disposition of certain market
discount bonds, generally are taxable as ordinary income.
Distributions from net realized long-term securities gains
generally are taxable as long-term capital gains. For
information concerning the federal income taxes to participating
separate account contract owners, see the applicable separate
account prospectus.
Management of the Fund believes that the Fund will qualify as a
"regulated investment company" under the Code. The Fund intends
to continue to so qualify if such qualification is in the best
interest of its shareholders. Qualification as a regulated
investment company relieves the Fund of any liability for federal
income taxes to the extent its earnings are distributed in
accordance with the applicable provisions of the Code. The Fund
is subject to a non-deductible 4% excise tax, measured with
respect to certain undistributed amounts of taxable investment
income and capital gains.
OTHER INFORMATION
The Fund was incorporated on March 18, 1998 as a Maryland
corporation and commenced operations upon completion of the
Reorganization described on page 3. The authorized capital stock
of the Fund consists of 200 million shares of common stock, par
value $.001 per share. Each share outstanding is entitled to one
vote on all matters submitted to a vote of shareholders of the
Fund and is entitled to a pro rata share of any distributions
made by the Fund and, in the event of liquidation, of its net
assets remaining after satisfaction of outstanding liabilities.
Each share of the Fund, when issued, is nonassessable and has no
preemptive or conversion rights. The shares have noncumulative
voting rights.
As a Maryland corporation, the Fund is not required to hold
regular annual shareholder meetings. The Fund is, however,
required to hold shareholder meetings for the following purposes:
(i) approving certain agreements as required by the 1940 Act;
(ii) changing fundamental investment objectives, policies and
restrictions of the Fund; and (iii) filling vacancies on the Board
of Directors in the event that less than a majority of the
members of the Board of Directors were elected by shareholders.
Directors may also be removed by shareholders by a vote of a
majority of all votes entitled to be cast for the election of
directors. The Fund has the obligation to assist in shareholder
communications. As the sole record holder of the outstanding
shares of the Fund, the Company will be deemed a controlling
person of the Fund, as that term is defined in the 1940 Act.
Annual reports containing audited financial statements of the
Fund and semiannual reports containing unaudited financial
statements, as well as proxy materials, are sent to participating
separate account contract owners and their participants, annuitants
or beneficiaries, as appropriate.
Inquiries may be made by writing to the Fund at P.O. Box 25523,
Oklahoma City, Oklahoma 73125-0523, or by calling toll-free (800)
654-8489.
<PAGE>
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
_______________, 1998
This Statement of Additional Information is not a prospectus, and
should be read in conjunction with the current Prospectus of
American Fidelity Dual Strategy Fund, Inc. (the "Fund") dated
_________________, 1998, as it may be revised from time to time
(the "Prospectus"). A copy of the Prospectus may be obtained by
writing to the Fund at the following address or calling the
number listed below:
American Fidelity Dual Strategy Fund, Inc.
P. O. Box 25523
Oklahoma City, Oklahoma 73125-0523
1-800-654-8489
Shares of the Fund are offered only to variable annuity separate
accounts established by American Fidelity Assurance Company (the
"Company") to fund variable annuity contracts (the "Contracts").
The Company serves as the Fund's investment adviser. The Company
has engaged Lawrence W. Kelly & Associates, Inc. ("Kelly") and
Todd Investment Advisors, Inc. ("Todd Investment") to serve as
sub-advisers (together, the "Sub-Advisers") to the Fund and
provide day-to-day portfolio management for the Fund.
TABLE OF CONTENTS
Page
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . B-3
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-4
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . B-6
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . B-7
CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-8
FEDERAL TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . B-9
CALCULATION OF PERFORMANCE DATA. . . . . . . . . . . . . . . . . . . . B-10
CUSTODIAN, INDEPENDENT ACCOUNTANTS AND COUNSEL . . . . . . . . . . . . B-11
<PAGE>
INTRODUCTION
American Fidelity Dual Strategy Fund, Inc. is an open-end
management investment company established as a Maryland
corporation on March 18, 1998. The Fund is the intended
successor to American Fidelity Variable Annuity Fund A ("Variable
Annuity Fund A"). The reorganization (the "Reorganization") of
Variable Annuity Fund A from a management investment company
into a unit investment trust ("Separate Account A") is being
submitted for the approval of the Contract owners of Variable
Annuity Fund A at a meeting of Contract owners scheduled for
December 21, 1998. If the Reorganization is approved, effective
January 1, 1999, the assets of Variable Annuity Fund A will be
transferred intact to the Fund in exchange for shares of the Fund
which will be held by the Company on behalf of Separate Account A.
By investing in the Fund, an investor becomes entitled to a pro
rata share of all dividends and distributions arising from the
net income and capital gains on the investments of the Fund.
Likewise, an investor shares pro rata in any losses of the Fund.
Initially, the Fund is offering its shares only to Separate
Account A as the underlying funding vehicle for the Contracts
supported by Separate Account A. The Fund does not offer its
stock directly to the general public. Separate Account A, like
the Fund, is registered as an investment company with the
Securities and Exchange Commission ("SEC"), and a separate
prospectus, which accompanies the Prospectus for the Fund,
describes that separate account and the Contracts it supports.
The prospectus for Separate Account A also has a statement of
additional information. The Fund may, in the future, offer its
stock to other separate accounts of the Company supporting other
variable annuity contracts.
Terms appearing in this Statement of Additional Information that
are defined in the Prospectus have the same meaning as in the
Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The Fund has adopted the fundamental policies listed below.
These policies cannot be changed without approval by the holders
of a majority, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"), of the Fund's outstanding voting
shares.
(1) Not more than 5% of the value of the Fund's assets will
be invested in securities of any one issuer, except obligations
of the United States Government and instrumentalities thereof.
(2) Not more than 10% of the voting securities of any one
issuer will be acquired.
(3) Not more than 25% of the value of the Fund's assets
will be invested in any one industry.
(4) No borrowings will be made except that the right is
reserved to borrow from banks for emergency purposes, provided
that such borrowings do not exceed 5% of the value of the assets
of the Fund and that there always will be asset coverage of at
least 300% for all outstanding borrowings of the Fund.
(5) The Fund will not act as an underwriter of securities
of other issuers, except to the extent that the Fund might be
construed to be a statutory underwriter by virtue of its
investment in restricted securities.
(6) Not more than 10% of the value of the assets of the
Fund may be invested in real estate (including shares of real
estate investment trusts), securities for which there is no
established market, or securities (including bonds, notes or
other evidences of indebtedness) which are not readily marketable
without registration under Federal or state securities laws.
(7) No purchase of commodities or commodity contracts will
be effected.
(8) The Fund will not engage in the purchase or sale of puts,
calls or other options or in the writing of such options.
(9) Loans will not be made except through the acquisition
of bonds, debentures or other evidences of indebtedness of a type
customarily purchased by institutional investors, whether or not
publicly distributed.
(10) Investment will not be made in the securities of a
company for the purpose of exercising management or control.
(11) Although it is not intended that investments be made in
securities of other investment companies, the Fund may make such
investments up to a maximum of 10% of its assets, provided that
not more than 3% of the total outstanding voting stock of any one
investment company may be held.
(12) Investments in repurchase agreements will be limited to
the top thirty-five U.S. Banks, by deposits, that are rated at
least "B/C" by Keefe, Bruyette, Woods, a national bank rating
agency, or a comparable rating from a similar bank rating
service. Additionally, there must be an appropriate amount of
excess collateralization depending upon the length of the
agreement, to protect against downward market fluctuation and the
Fund must take delivery of the collateral. The market value of
the securities held as collateral will be valued daily. In the
event the market value of the collateral falls below the
repurchase price, the bank issuing the repurchase agreement will
be required to provide additional collateral sufficient to cover
the repurchase price.
(13) Short sales of securities will not be made.
(14) Purchases will not be made on margin, except for such
short-term credits as are necessary for the clearance of
transactions.
(15) Investments in high-yield or non-investment grade bonds
will not be made.
(16) Investments in the equity securities of foreign issuers
will be limited to American Depositary Receipts ("ADRs"), other
depository receipts or ordinary shares if U.S. dollar denominated
and publicly traded in the United States. Not more than 35% of
the Fund's assets will be invested in foreign issuers. In
addition, not more than 20% of the Fund's assets will be invested
in issuers of any one foreign country.
If a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting
from a change in values or assets will not constitute a violation
of that restriction.
The Fund has also adopted the following non-fundamental
investment policies:
(1) The Fund should generally conform to the issuer
guidelines noted below with exceptions noted at the time of
recommendation and variances reviewed annually:
(a) $150,000,000 or more in assets,
(b) Operational for at least 10 years, and
(c) $50,000,000 or more in stockholders' equity.
(2) Although the Fund does not intend to engage to a large
extent in short-term trading, it may make investments for the
purpose of seeking short-term capital appreciation.
(3) The Fund will not invest in the securities of tobacco-
producing companies.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus captioned
"Management."
Information about each director and officer of the Fund is as
follows:
Principal
Position(s) Held Occupation(s)
Name, Address and Age* with Registrant During Past 5 Years
- --------------------- ---------------- -------------------
John W. Rex, 64 Chairman of the Director (1982 to
2000 Classen Center Board, President present), President and
Oklahoma City, OK and Treasurer(1) Chief Operating Officer
73106 (2) (1992 to present), and
Treasurer (1972 to 1995)
of the Company; Director
(1982 to present),
Executive Vice President
(1990 to present) and
Treasurer (1972 to 1995)
of American Fidelity
Corporation
Daniel D. Adams, Director and Vice President and
Jr., 56 Secretary(1) Investment Officer of the
2000 Classen Center Company and American
Oklahoma City, OK Fidelity Corporation
73106
Jean G. Gumerson, Director President and Chief
75 Executive Officer,
711 Stanton L. Presbyterian Health
Young Blvd., Foundation
Suite 604
Oklahoma City, OK
73104
Edward C. Joullian, Director(1)(2) Chairman of the Board
III, 69 and Chief Executive
2000 Classen Center Officer, Mustang Fuel
800 East Corporation; Director
Oklahoma City, OK and Interim Chairman,
73106 Fleming Companies, Inc.;
Director, The LTV
Corporation; Director of
the Company and American
Fidelity Corporation
Gregory M. Love, 36 Director President and Chief
10601 N. Pennsylvania Operating Officer (1995
Avenue to present), Vice
Oklahoma City, OK President -- Real Estate
73120 and Development (1990 to
1995) of Love's Country
Stores, Inc.; Director,
Affiliated Food Stores,
Inc.
J. Dean Robertson, Director Private practice in
D.D.S., M.Ed., 81 pediatric dentistry;
5222 North Portland Professor Emeritus,
Oklahoma City, OK University of Oklahoma,
73112 College of Dentistry
G. Rainey Williams, Director President, Pinnacle Asset
Jr., 38 Management, Inc. (1996 to
6301 N. Western present); Managing
Oklahoma City, OK Partner, Marco Capital
73118 Group (1988 to 1996);
Director, Mustang Fuel
Corporation
______________
* As of September 30, 1998.
(1) "Interested person" of the Fund under Section 2(a)(19) of the
1940 Act.
(2) Also a director of the Company.
Until the date of the Reorganization, all members of the Board of
Directors were members of the Board of Managers of the Fund's
predecessor, Variable Annuity Fund A.
No officer or director of the Fund or the Company receives any
remuneration from the Fund. Members of the Board of Directors
who are not employees of the Company receive a fee, paid by the
Company, of $500 for each meeting attended.
A shareholder that owns more than 25% of the Fund's voting
securities may be deemed to be a "control person," as defined in
the 1940 Act, of the Fund. The Company is the sole shareholder
of record of the Fund. The only person known by the Fund to own
beneficially 5% or more of the securities of Variable Annuity
Fund A, the Fund's predecessor, is American Fidelity Companies
Employee Savings Plan Trust (8.67% as of October 5, 1998). Its
address is 2000 Classen Center, Oklahoma City, Oklahoma 73106.
After the Reorganization, the Trust's beneficial ownership
percentage of the Fund's shares will be the same as its
beneficial ownership percentage of Variable Annuity Fund A
securities immediately prior to the Reorganization. No officer
or director of the Fund beneficially owns any shares of the Fund,
although Messrs. Rex and Adams are participants in the Trust and
therefore beneficially own securities of the Fund's predecessor
prior to the Reorganization. After the Reorganization, their
beneficial ownership percentage of Fund shares will be the same
as their pre-Reorganization percentage in the predecessor. Their
beneficial ownership, together, as of October 5, 1998, was less
than 1%.
INVESTMENT ADVISORY AND OTHER SERVICES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus captioned
"Management."
Management and Investment Advisory Agreement
The Company provides management services and serves as the
investment adviser to the Fund pursuant to a Management and
Investment Advisory Agreement. Under this Agreement, the Company
assumes overall responsibility, subject to the supervision of the
Board of Directors, for administering all operations of the Fund,
including monitoring and evaluating the management of the Fund's
portfolio by the Sub-Advisers on an ongoing basis. The Company
provides or arranges for the provision of the overall business
management and administrative services necessary for the Fund's
operations. The Company is also responsible for overseeing the
Fund's compliance with the requirements of applicable law and
conformity with the Fund's investment objectives and policies,
including oversight of the Sub-Advisers.
For its services to the Fund, the Company receives an annual
management and investment advisory fee of 0.50% of the average
daily net assets of the Fund. The Company supplies or pays for
occupancy and office rental, clerical and bookkeeping, accounting,
stationery, supplies, the expenses of printing and distributing any
prospectuses, reports or sales literature in connection with the
sale of Fund shares, salaries and other compensation of the Fund's
directors and officers, costs of shareholder reports and meetings,
costs of any independent pricing service, the cost of any
advertising, the Sub-Advisers' fees, custodian fees, legal and auditing
fees, registration and filing fees, and all ordinary expenses
incurred in the ordinary course of business.
The Company received investment and advisory fees from Variable
Annuity Fund A, the Fund's predecessor, of $200,800 in 1995,
$353,000 in 1996 and $416,700 in 1997 pursuant to a management
and investment advisory agreement having the same fee arrangement
as the Agreement with the Fund from and after July 1, 1996
(previously provided for an annual fee of .325% of average daily
net assets).
The Management and Investment Advisory Agreement was approved for
the Fund by the Board of Directors, including a majority of the
directors who are not "interested persons," as defined in the
1940 Act, on September 18, 1998 and by the Fund's sole shareholder
on October __, 1998. The Agreement will remain in effect from year
to year, provided that it will not continue for more than two years
unless such continuance is approved at least annually by the Fund's
Board of Directors, including a majority of the members of the Board
of Directors who are not interested persons by vote cast in person
at a meeting called for the purpose of voting on such approval.
The Agreement is terminable without penalty, on 60 days' notice,
by the Fund's Board of Directors or by the vote of the holders of
a majority of the Fund's shares. The Company may not terminate
the Agreement without the approval of a new investment advisory
agreement by a majority of the Fund's shares. The Agreement will
terminate automatically in the event of its "assignment," as
defined in the 1940 Act.
American Fidelity Corporation is the parent of the Company.
American Fidelity Corporation is itself controlled by Cameron
Enterprises, A Limited Partnership ("CELP"). The general
partners of CELP are Cameron Associates, Inc., Theodore M. Elam
and, in their capacities as trustees, William E. Durrett, Edward
C. Joullian, III, John W. Rex and the Bank of Oklahoma, N.A. In
accordance with the CELP partnership agreement, management of the
affairs of CELP is vested in five managing general partners:
William M. Cameron and Messrs. Durrett, Joullian, Rex and Elam.
Investment Sub-Advisory Agreements
The Company has contracted with the Sub-Advisers to provide day-
to-day portfolio investment management services to the Fund. The
fees of the Sub-Advisers are paid by the Company. Kelly receives
an annual fee of .30% of Fund assets under its management. Todd
Investment receives an annual fee of .38% of Fund assets under
its management or $50,000, whichever is greater. The Sub-
Advisers' fees are payable quarterly and, when based on Fund
assets, are calculated on the value of Fund assets on the last
trading day of each calendar quarter.
Kelly served as a research consultant to Variable Annuity Fund A,
the Fund's predecessor, from 1985 until it became a sub-adviser
to Variable Annuity Fund A in October 1995. Kelly provided
investment research and specific investment recommendations to
the Company and Variable Annuity Fund A for an annual fee of
$50,000. The Company paid all of Kelly's fees under the
consulting agreement, of which $20,100 in 1995 was allocated to
Variable Annuity Fund A. Pursuant to the Variable Annuity Fund A
sub-advisory agreements containing the same fee arrangements as are
in the Sub-Advisers' Agreements with respect to the Fund, in 1995,
1996 and 1997, the Company paid Kelly $27,150, $131,000 and
$182,050, respectively, and Todd Investment $34,700, $165,300 and
$234,600, respectively.
The Investment Sub-Advisory Agreement for each of the Sub-
Advisers was approved for the Fund by the Board of Directors,
including a majority of the directors who are not "interested
persons," as defined in the 1940 Act, on September 18, 1998 and
by the sole shareholder of the Fund on October __, 1998. Each
Agreement will remain in effect from year to year provided such
continuance is approved at least annually by the Fund's Board
of Directors, including a majority of the members of the Board of
Directors who are not interested persons by vote cast in person at
a meeting called for the purpose of voting on such approval. Each
Agreement is terminable without penalty, on 30 days' notice, by the
Company, the Fund's Board of Directors or by the vote of the holders
of a majority of the Fund's shares or, upon 30 days' notice, by the
Sub-Adviser. Each Agreement will terminate automatically in the
event of its "assignment," as defined in the 1940 Act.
Lawrence W. Kelly and his wife, Janice M. Kelly, are the majority
shareholders of Kelly, each holding 48.8% of Kelly's outstanding
stock. Todd Investment is a wholly-owned subsidiary of Stifel
Asset Management Corp., which is a wholly-owned subsidiary of
Stifel Financial Corporation.
PORTFOLIO TRANSACTIONS
Each of the Sub-Advisers is responsible for decisions to buy and
sell securities for the Fund, the selection of brokers to effect
transactions and the negotiation of brokerage commissions, in
each case with respect to Fund securities under its management.
Neither Sub-Adviser nor any of their respective affiliates may
act as a broker for Fund securities transactions.
In selecting a broker to execute portfolio transactions, Kelly's
objective is to obtain the best execution, while at the same time
obtaining research used to service its clients. The selection of
a broker takes into account the quality of brokerage services,
including such factors as execution capability, financial
stability and clearance and settlement capability. Research
furnished by brokers may be used in serving any or all of Kelly's
clients, including clients which have not paid commissions to the
broker providing the research. Kelly evaluates the
reasonableness of brokerage commissions on an on-going basis in
light of the general level of commissions being paid from time to
time and the value of research services received. In order to
obtain lower commission rates for clients, Kelly engages from
time to time in block trades, i.e., grouping orders with a single
broker. Accounts involved in such transactions receive the
average executed price, except that brokers may charge smaller
accounts a minimum commission resulting in smaller accounts
paying slightly more in commissions per share than larger
accounts.
In selecting brokers to effect portfolio transactions, Todd
Investment uses its best efforts to obtain for its clients the
most favorable price and execution available except to the extent
that it determines that clients should pay a higher brokerage
commission for brokerage and research services. In evaluating
the overall reasonableness of brokerage commissions paid, Todd
Investment reviews the type and quality of the execution services
rendered and the quantity and nature of the portfolio
transactions effected and compares generally the commissions paid
to brokers with the commissions believed to be charged by other
brokers for effecting similar transactions as well as with
commissions generally charged by brokers prior to the
introduction of negotiated commission rates. In addition, it
takes into account the quality and usefulness of the brokerage
and research services, if any, that may be furnished by such
brokers. Research services provided by brokers may be used by
Todd Investment in advising all of its clients and not all such
services may be used by the clients which paid the commissions.
Conversely, however, a client of Todd Investment may benefit from
research services provided by brokers whose commissions are paid
by other clients. As a result, Todd Investment may cause clients
to pay a broker which provides brokerage and research services to
Todd Investment a higher brokerage commission than would have
been charged by another broker which was not providing such
services.
Research services provided by brokers may include research
reports on companies, industries and securities; economic and
financial data, including reports on macro-economic trends and
monetary and fiscal policy; financial publications; computer data
bases; quotation equipment and services; and research-oriented
computer hardware, software and services.
For the years 1995, 1996 and 1997, the Fund's predecessor,
Variable Annuity Fund A, paid brokerage commissions of $137,100,
$87,100 and $90,500. The higher commissions in 1995 were largely
because of the increased trading in the fourth quarter after the
Sub-Advisers started managing Variable Annuity Fund A's
portfolio. As a percentage of net assets, commissions were .18%
in 1995, .09% in 1996 and .07% in 1997.
The rate of portfolio turnover is not a limiting factor when
changes are deemed appropriate. Under normal circumstances the
annual portfolio turnover will not exceed 80% although, in any
particular year, conditions could result in portfolio activity at
a greater rate than anticipated. A turnover ratio is the lesser
of the cost of securities purchased or the consideration of
securities sold divided by the monthly average value of
securities held during a year. A higher turnover rate than
anticipated does not, in and of itself, indicate a variation of
investment policy. During periods of increased market
volatility, or after a prolonged advance in the equity market, a
turnover rate of more than 100% may be incurred in order to shift
assets from securities that are more fully valued to securities
that are perceived to be undervalued. A high portfolio turnover
rate may involve correspondingly greater broker commissions and
other transaction costs which will be borne by the Fund. The
Fund will not engage in transactions contributing to a high
portfolio turnover rate unless the Sub-Advisers believe their
added benefit exceeds their added cost. The Fund does not expect
that the assets of the Fund will be subject to Federal income
tax. Therefore, any change in portfolio activity is not expected
to have any adverse tax consequences at this time. See "Federal
Tax Matters."
The annual portfolio turnover rate for Variable Annuity Fund A,
predecessor to the Fund, during the years 1995, 1996 and 1997 was
66.1%, 36.9% and 26.6%, respectively.
CAPITAL STOCK
Each issued and outstanding share of the Fund is entitled to
participate equally in dividends and distributions declared for
the Fund's stock and, upon liquidation or dissolution, in the
Fund's net assets remaining after satisfaction of outstanding
liabilities.
The shares of the Fund, when issued, will be fully paid and non-
assessable and have no preemptive or conversion rights.
As the successor to Variable Annuity Fund A, the Fund will receive
the assets of Variable Annuity Fund A in exchange for shares of
the Fund.
Under normal circumstances, subject to the reservation of rights
explained below, the Fund will redeem shares in cash within seven
days. However, the right of a shareholder to redeem shares and
the date of payment by the Fund may be suspended for more than
seven days for any period during which the New York Stock
Exchange is closed, other than customary weekends or holidays, or
when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a
result of which it is not reasonably practicable for the Fund to
dispose of securities owned by it or fairly to determine the
value of its net assets; or for such other period as the SEC may
by order permit for the protection of shareholders.
Under Maryland law, the Fund is not required to hold annual
shareholder meetings and does not intend to do so.
FEDERAL TAX MATTERS
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus captioned
"Dividends, Distributions and Taxes."
The Fund intends to qualify and to continue to qualify as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). In order to
qualify for that treatment, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment
company taxable income, consisting of net investment income, net
short-term capital gain and net gains from certain foreign
currency transactions.
Sources of Gross Income
To qualify for treatment as a regulated investment company, the
Fund must also, among other things, derive its income from
certain sources. Specifically, in each taxable year, the Fund
must generally derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of securities or foreign
currencies, or other income derived with respect to its business
of investing in securities, or foreign currencies.
Diversification of Assets
To qualify for treatment as a regulated investment company, the
Fund must also satisfy certain requirements with respect to the
diversification of its assets. The Fund must have, at the close
of each quarter of the Fund's taxable year, at least 50% of the
value of its total assets represented by cash, cash items, United
States Government securities, securities of other regulated
investment companies, and other securities which, in respect of
any one issuer, do not exceed 5% of the value of the Fund's total
assets and that do not represent more than 10% of the outstanding
voting securities of the issuer. In addition, not more than 25%
of the value of the Fund's total assets may be invested in
securities (other than United States Government securities or the
securities of other regulated investment companies) of any one
issuer, or of two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses or
related trades or businesses. The Fund's investments in U.S.
Government securities are not subject to these limitations. The
foregoing diversification requirements are in addition to those
imposed by the 1940 Act.
Because the Fund is established as an investment medium for
variable annuity contracts, Section 817(h) of the Code imposes
additional diversification requirements on the Fund. These
requirements which are in addition to the diversification
requirements mentioned above, place certain limitations on the
proportion of the Fund's assets that may be represented by any
single investment. In general, no more than 55% of the value of
the assets of the Fund may be represented by any one investment;
no more than 70% by any two investments; no more than 80% by any
three investments; and no more than 90% by any four investments.
For these purposes, all securities of the same issuer are treated
as a single investment and each United States government agency
or instrumentality is treated as a separate issuer.
Additional Tax Considerations
The Fund will not be subject to the 4% federal excise tax imposed
on amounts not distributed to shareholders on a timely basis
because the Fund intends to make sufficient distributions to
avoid such excise tax. If the Fund fails to qualify as a
regulated investment company, owners of Contracts based on the
Fund might be taxed currently on the investment earnings under
their Contracts and thereby lose the benefit of tax
deferral, and the Fund might incur additional taxes. In
addition, if the Fund failed to qualify as a regulated investment
company, or if the Fund failed to comply with the diversification
requirements of Section 817(h) of the Code, owners of Contracts
based on the Fund would be taxed on the investment earnings under
their Contracts and thereby lose the benefit of tax deferral.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and Treasury Regulations
currently in effect. It is not intended to be a complete
explanation or a substitute for consultation with individual tax
advisers. For the complete provisions, reference should be made
to the pertinent Code sections and the Treasury Regulations
promulgated thereunder. The Code and Regulations are subject to
change.
CALCULATION OF PERFORMANCE DATA
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus captioned
"Performance Information."
The Fund may from time to time quote or otherwise use average
annual total return information for the Fund in advertisements,
shareholder reports or sales literature. The Fund's total return
for the twelve months ended June 30, 1998 and average annual total
returns over the five and ten year periods ended June 30, 1998 were
28.49%, 21.35% and 17.39%, respectively. Average annual total
return quotations are computed by finding the average annual
compounded rates of return over one, five and ten year periods
that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)*n=ERV
Where:
P = a hypothetical initial investment of $1,000
T = average annual total return
* = to the power of
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 investment made
at the beginning of the one, five
or ten-year period.
From time to time, the Fund may disclose cumulative total returns
in conjunction with the standardized returns described above. The
Fund's cumulative total returns for the one, five and ten year time
periods ended June 30, 1998 were 28.49%, 163.19% and 397.03%,
respectively. Total return is calculated by subtracting the amount
of the Fund's net asset value per share at the beginning of a stated
period from the net asset value per share at the end of the period,
and dividing the result by the net asset value per share at the
beginning of the period.
Any performance data quoted for the Fund will represent
historical performance, and the investment return and principal
value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than original
cost.
As the successor to Variable Annuity Fund A, the Fund treats
the historical performance data of Variable Annuity Fund A
as its own for periods prior to the Reorganization. In computing
returns for periods prior to the Reorganization, the Fund assumes
that the charges currently imposed by the Fund were in effect
through each of the periods for which returns are presented. The
Fund's performance data do not reflect any sales, insurance or
other charges imposed under the annuity contracts supported by the
Fund.
CUSTODIAN, INDEPENDENT ACCOUNTANTS AND COUNSEL
All of the assets of the Fund are held under a custodial
safekeeping agreement by InvesTrust, N.A., 6301 N. Western,
Suite 210, Oklahoma City, Oklahoma 73118. Under its agreement
with the Fund, InvesTrust, N.A., which is an indirect subsidiary
of American Fidelity Corporation, holds the Fund's portfolio
securities and keeps all necessary accounts and records.
This Statement of Additional Information does not contain audited
or unaudited financial statements for the Fund because as of the
date of this statement the Fund has not yet commenced operations,
has no assets or liabilities, has incurred no expenses and has
received no income. It is anticipated that KPMG Peat Marwick
LLP, Oklahoma City, Oklahoma will act as the Fund's independent
certified public accountants.
McAfee & Taft A Professional Corporation, Two Leadership Square,
Tenth Floor, Oklahoma City, Oklahoma 73102 has rendered its
opinion as to certain legal matters regarding the shares being
sold pursuant to the Fund's Prospectus.
<PAGE>
PART C
OTHER INFORMATION
Item 24 -- Financial Statements and Exhibits
(a) Financial Statements
No financial statements are included in this Registration
Statement.
(b) Exhibits
Exhibit
Number
- -------
1* - Articles of Incorporation of Registrant.
2* - Bylaws of Registrant.
3 - Not applicable.
4 - Not applicable.
5.1* - Form of Management and Investment Advisory Agreement
between Registrant and American Fidelity Assurance
Company (the "Company").
5.2* - Form of Investment Sub-Advisory Agreement between the
Company and Lawrence W. Kelly & Associates, Inc.
5.3* - Form of Investment Sub-Advisory Agreement between the
Company and Todd Investment Advisors, Inc.
6* - Form of Participation Agreement between Registrant and
the Company.
7 - Not applicable.
8**- Form of Corporate Custodial Agreement between
Registrant and InvesTrust, N.A.
9 - Not applicable.
10** - Opinion and Consent of Counsel.
11 - Not applicable.
12 - Not applicable.
13**- Agreement and Plan of Reorganization dated October 13,
1998 among Registrant, the Company and American Fidelity
Variable Annuity Fund A.
14 - Not applicable.
15 - Not applicable.
16** - Schedule for computation of performance quotations.
17 - Not applicable.
18 - Not applicable.
24* - Power of Attorney.
_______________
* Filed with the initial registration statement on July 16, 1998.
** Filed herewith.
Item 25 -- Persons Controlled by or Under Common Control with the
Registrant
The Registrant is controlled by American Fidelity Assurance
Company, an Oklahoma corporation and a wholly-owned subsidiary of
American Fidelity Corporation, a Nevada corporation. American
Fidelity Corporation is controlled by a family investment
partnership, Cameron Enterprises, a Limited Partnership, whose
managing partners are William M. Cameron, William E. Durrett,
Edward C. Joullian, III, John W. Rex and Theodore M. Elam. The
following chart shows the affiliated entities.
CAMERON ENTERPRISES, A LIMITED PARTNERSHIP (CELP) - OK<F2>
73-1267299
<TABLE>
<S> <C> <C> <C> <C>
CELP Ltd. Agency, Inc.
100% - OK
73-1369092
North American
Ins. Agency, Inc.
(NAIA)
91.5% - OK
73-0687265
Shade Works, LLC Agar Ins. Agency, Inc. North American Ins.
33.33% - OK 95.4% - OK Agency of
73-1475654 73-0675989 Colorado, Inc.
100% - CO
84-0599059
N.A.I.A. of North American North American
Louisiana, Inc. Insurance Agency of Ins. Agency of
100% - LA New Mexico, Inc. Tulsa, Inc.
72-0761691 100% - NM 100% - OK
85-0441542 73-0778755
North American N.A.I.A. Ins. Agency,
Ltd. Agency, Inc. Inc.
100% - OK 100% - OK
73-1356772 73-1527682
National Ins.
Marketers Agency,
Inc.
100% - OK
73-1437538
American Fidelity Corp.
(AFC)
94.0% - NV
73-0966202
Market Place Realty American Mortgage Security General
Corp. (MPRC) & Investment Co. Life Ins. Co.
100% - OK (AMICO) (SGL)<F1>
73-1160212 98.7% - OK 100% - OK
73-1232134 73-0741925
NAIC #68691
Holliday Mortgage Corp.
100% - OK
73-1284635
Concourse C, Inc. American Fidelity Cimarron
100% - OK Property Co. (AFPC) Investment
73-1505641 100% - OK Co., Inc.
73-1290496 100% - KS
48-0759023
Home Rentals, Inc.
100% - OK
73-1364226
Shade Works, LLC
16.67% - OK
73-1475634
American Fidelity
Assurance Co.<F1>
(AFA)
100% - OK
73-0714500
NAIC #60410
AF Apartments, Inc. American Fidelity American Fidelity
100% - OK Securities, Inc. Ltd. Agency, Inc.
73-1512985 (AFS) (AFLA)
100% - OK 100% - OK
73-0783902 73-1352430
American
Fidelity
General
Agency, Inc.
(AFGA)
100% - OK
73-1352431
Balliet's, L.L.C. Apple Creek
75% - OK Apartments, Inc.
73-1529608 100% - OK
73-1408485
ASC Holding, L.L.C.
75% - OK
73-1528120
InvesTrust, N.A. Asset Services Co.,
100% - OK L.L.C.
73-1546867 100% - OK
73-1547246
American Fidelity
International
Holdings, Inc.
100% - OK
73-1421879
American Fidelity American Fidelity
Offshore Care, LLC
Investments, Ltd. 33% - OK
100% - Bermuda 73-1424864
NAIC #20400
Reg. #EC20754
American Fidelity American Fidelity Covenant
(Cypress) Ltd.<F3> (China), Ltd.<F3> Underwriters
99% - Republic of 93% - Bermuda (Bermuda) Ltd.<F3>
Cypress 33.33% - Bermuda
Soyuznik Insurance
Co.<F3>
34% - Russian
Federation
Mari El Development Pacific World
Corporation Limited Holdings, Ltd.<F3>
51.3% - Republic of 55% - Labuan
Cyprus
Reg. #7035
_______________
<FN>
<F1> Insurance Company
<F2> A Limited Partnership
<F3> No tax or registration numbers
</FN>
</TABLE>
NOTE: All of the above organizations are corporations that have
the word Company, Inc., or Corp. The above organizations
which have the letters L.L.C. or L.C. are limited
liability companies.
Item 26 -- Number of Holders of Securities
As of the date of this Registration Statement, American
Fidelity Assurance Company was the sole holder of common stock of
the Registrant.
Item 27 -- Indemnification
Article Eighth, Section 2 of the Registrant's Articles of
Incorporation provides as follows:
The corporation shall indemnify and advance expenses to
its currently acting and its former directors to the
fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The
corporation shall indemnify and advance expenses to its
officers to the same extent as its directors and to
such further extent as is consistent with law. The
Board of Directors may, through a by-law, resolution or
agreement, make further provisions for indemnification
of directors, officers, employees and agents to the
fullest extent permitted by the Maryland General
Corporation Law.
The By-Laws of Registrant provide in Article VIII as
follows:
1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The
corporation shall indemnify its directors to the fullest
extent that indemnification of directors is permitted by
law. The corporation shall indemnify its officers to the
same extent as its directors and to such further extent as
is consistent with law. The corporation shall indemnify its
directors and officers who while serving as directors or
officers also serve at the request of the corporation as a
director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan to
the same extent as its directors and, in the case of
officers, to such further extent as is consistent with law.
The indemnification and other rights provided by this
Article shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the
heirs, executors and administrators of such a person. This
Article shall not protect any such person against any
liability to the corporation or any stockholder thereof to
which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office ("disabling conduct").
2. ADVANCES. Any current or former director or officer of
the corporation seeking indemnification within the scope of
this Article shall be entitled to advances from the
corporation for payment of the reasonable expenses incurred
by him in connection with the matter as to which he is
seeking indemnification in the manner and to the fullest
extent permissible under the General Corporation Law. The
person seeking indemnification shall provide to the
corporation a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification
by the corporation has been met and a written undertaking to
repay any such advance if it should ultimately be determined
that the standard of conduct has not been met. In addition,
at least one of the following additional conditions shall be
met: (a) the person seeking indemnification shall provide
security in form and amount acceptable to the corporation
for his undertaking; (b) the corporation is insured against
losses arising by reason of the advance; or (c) a majority
of a quorum of directors of the corporation who are neither
"interested persons" as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended, nor parties to
the proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall have
determined, based on a review of facts readily available to
the corporation at the time the advance is proposed to be
made that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to
indemnification.
3. PROCEDURE. At the request of any person claiming
indemnification under this Article, the Board of Directors
shall determine, or cause to be determined, in a manner
consistent with the General Corporation Law, whether the
standards required by this Article have been met.
Indemnification shall be made only following: (a) a final
decision on the merits by a court or other body before whom
the proceeding was brought that the person to be indemnified
was not liable by reason of disabling conduct or (b) in the
absence of such a decision, a reasonable determination,
based upon a review of the facts, that the person to be
indemnified was not liable by reason of disabling conduct by
(i) the vote of a majority of a quorum of disinterested non-
party directors or (ii) an independent legal counsel in a
written opinion.
4. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Employees and
agents who are not officers or directors of the corporation
may be indemnified and reasonable expenses may be advanced
to such employees or agents, as may be provided by action of
the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940,
as amended.
5. OTHER RIGHTS. The Board of Directors may make further
provision consistent with law for indemnification and
advance of expenses to directors, officers, employees and
agents by resolution, agreement or otherwise. The
indemnification provided by this Article shall not be deemed
exclusive of any other right, with respect to indemnification
or otherwise, to which those seeking indemnification may be
entitled under any insurance or other agreement or resolution
of stockholders or disinterested non-party directors or otherwise.
6. AMENDMENTS. References in this Article are to the
General Corporation Law and to the Investment Company Act of
1940 as from time to time amended. No amendment of the by-
laws shall affect any right of any person under this Article
based on any event, omission or proceeding prior to the
amendment.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
In accordance with Section 17(h) of the Investment Company
Act of 1940 (the "1940 Act"), the members of the Board of
Directors of Registrant do hereby waive any provision for
indemnification to the extent such provision violates Section
17(h). The members of the Board of Directors and the officers
signing this Registration Statement agree that indemnification of
any of them is precluded for any liability, whether or not there
is an adjudication of liability, arising by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of their respective offices
("disabling conduct") unless (1) there is a final decision on the
merits by a court or other body before whom the proceeding was
brought that the person to be indemnified was not liable by
reason of disabling conduct; (2) a reasonable determination that
the person to be indemnified was not liable by reason of
disabling conduct by the vote of a majority of a quorum of
directors who are neither "interested persons" of the Registrant
nor parties to the proceeding; or (3) such a determination by an
independent legal counsel in a written opinion.
Item 28 -- Business and Other Connections of Investment Adviser
American Fidelity Assurance Company (the "Company") is
primarily engaged in writing life, accident and health and
annuity business. Set forth below are the names of each of the
directors and executive officers of the Company, their positions
and offices with the Company and any other business, profession,
vocation or employment of a substantial nature in which each is
or has been, during the past two fiscal years, engaged for his or
her own account or in the capacity of director, officer,
employer, partner or trustee:
Positions and
Name and Principal Offices
Business Address* with the Company Other Affiliations
- ------------------ ---------------- ------------------
Lynda L. Cameron Director President, Cameron
Equestrian Centers, Inc.
2000 Classen Center
Oklahoma City, OK
73106
William M. Cameron Chairman and Chief Chairman, President
Executive Officer, and Chief Executive Officer
Director (January 1998 to present); Vice
Chairman and Senior Vice
President (prior to 1998),
American Fidelity Corporation;
Director, ASC Holding, L.L.C.;
Chairman, First Fidelity Bank,
N.A. and First Fidelity
BanCorp, Inc.
3535 N.W. 58th, Suite 200
Oklahoma City, OK 73112
David R. Carpenter Senior Vice Senior Vice President,
President, American Fidelity Corporation;
Chairman, President, Chief
Executive Officer, Treasurer
and Chief Financial Officer,
American Fidelity Securities, Inc.
William E. Durrett Senior Chairman, Senior Chairman
Director (January 1998 to present);
Chairman, President and Chief
Executive Officer (prior to
1998), American Fidelity
Corporation; Director, Bank
Oklahoma Financial Corporation
Bank Oklahoma Tower
P.O. Box 2300
Tulsa, OK 74192;
Director, Integris Health, Inc.
3366 N.W. Expressway
Oklahoma City, OK 73112;
Director, OGE Energy Corporation
P.O. Box 321
Oklahoma City, OK 73101
Stephen P. Garrett Senior Vice Senior Vice President and
President, Secretary, American Fidelity
Secretary Corporation; Director, First
Fidelity Bank, N.A. and First
Fidelity BanCorp, Inc.
3535 N.W. 58th, Suite 200
Oklahoma City, OK 73112
William A. Hagstrom Director Chairman and President,
UroCor, Inc.
800 Research Parkway
Oklahoma City, OK 73104
Edward C. Joullian, III Director Chairman and Chief Executive
Officer, Mustang
Fuel Corporation
2000 N. Classen,
Suite 800 East
Oklahoma City, OK 73106;
Director and Interim Chairman,
Fleming Companies, Inc.
6301 Waterford Blvd.
Oklahoma City, OK 73118;
Director, The LTV Corporation
200 Public Square
P.O. Box 655003
Cleveland, OH 44115
Kenneth D. Klehm Senior Vice Senior Vice President, Treasurer,
President Controller and Chief Financial
Officer, American Fidelity
Corporation; Director, ASC
Holding, L.L.C.; Director,
First Fidelity Bank and
First Fidelity BanCorp, Inc.
3535 N.W. 58th, Suite 200
Oklahoma City, OK 73112
Alfred L. Litchenburg Senior Vice Director, Southwest Bancorp,
President Inc.
608 South Main Street
Stillwater, OK 74074
David R. Lopez Director President, Oklahoma Division
of Southwestern Bell Telephone
Company
800 N. Harvey, Room 300
Oklahoma City, OK 73102
Paula Marshall-Chapman Director Chief Executive Officer, The
Bama Companies, Inc.
2745 East 11th Street
Tulsa, OK 74104;
Director, Public Service
Company
212 East 6th Street
Tulsa, OK 74119
John W. Rex President, Chief Executive Vice
Operating Officer, President and
Director Director, American
Fidelity Corporation
Galen P. Robbins, M.D. Director Physician and, prior to 1998,
Director, Cardiovascular Clinic
3433 N.W. 56th
Oklahoma City, OK
73112
John D. Smith Director President, John D.
Smith Developments, Inc.
3400 Peach Tree Road
Suite 831
Atlanta, GA 30326
_________________
* Principal business address is 2000 Classen Center, Oklahoma
City, Oklahoma 73106 or, if applicable, the address set forth
under "Other Affiliations."
A description of the other investment advisory activities of
the Sub-Advisers is included in the Prospectus under
"Management."
Lawrence W. Kelly and Janice M. Kelly are the majority
shareholders and directors of Lawrence W. Kelly & Associates,
Inc., 200 South Los Robles Avenue, Suite 510, Pasadena,
California 91101. The officers of Kelly and the positions they
have held since January 1, 1996 or earlier are as follows:
Name Positions
---- ---------
Lawrence W. Kelly Chairman, Chief Executive
Officer and Treasurer
Nicholas J. Welsh Executive Vice President
(1996-present); Senior
Vice President
(1995-1996)
H. James Darcey Executive Vice President
(1996-present); Chairman,
President and Chief
Executive Officer, First
Security Investment
Management, Inc., Salt
Lake City, UT (1988-1995)
Maria Alejandra Tescher Executive Vice President
-Senior Trader &
Operations Manager
(1996-present);
Vice President
(1995-1996)
Catherin M. Oaks Vice President-Operations
and Compliance (1997-
present); Registered
Sales Assistant, Morgan
Stanley Dean Witter
(1996-1997); Branch
Administrative Assistant,
Dean Witter (1994-1996)
Janice M. Kelly Secretary
Todd Investment Advisors, Inc., 101 South Fifth Street,
Suite 3160, Louisville, Kentucky 40202, is a wholly-owned
subsidiary of Stifel Asset Management Corp. ("SAMC"), which is a
wholly-owned subsidiary of Stifel Financial Corporation ("SFC").
The address of both SAMC and SFC is 500 North Broadway, St.
Louis, Missouri 63102. Stifel, Nicolaus & Company ("Stifel"), a
registered broker-dealer and investment adviser, is another
wholly-owned subsidiary of SFC. Todd Investment is managed by the
following persons, who have held the positions indicated since
January 1, 1996 or earlier:
Name Positions
---- ---------
Bosworth M. Todd Chairman; Director, First Capital
Bank of Kentucky, Louisville, KY
(1996- present); Director of SAMC
Robert P. Bordogna President and Chief Executive
Officer; Director of SAMC
George Herbert Walker, III Chairman of SFC and SAMC
Richard A. Loebig Executive Vice President (1996-
present); Vice President, Chandler
Liquid Asset Management, San
Diego, CA (1996); Vice President,
PNC Bank, Kentucky, Louisville,
KY (1991-1996)
Gayle S. Dorsey Executive Vice President (1997-
present); Vice President,
J.J.B. Hilliard, W.L. Lyons, Inc.,
Louisville, KY (1976-1997)
Sam C. Ellington Vice President (1996-present); Vice
President, PNC Bank, Kentucky,
Louisville, KY (1993-1996)
Curtiss M. Scott, Jr. Vice President (1996-present);
Partner and Managing Director,
Executive Investment Advisors,
Inc., Louisville, KY (1993-1996)
Margaret C. Bell Vice President of Marketing
C. Kevin Blair Vice President, Business
Development (1997-Present); Vice
President, PNC Bank, Kentucky,
Louisville, KY (1992-1997)
Directors of Todd Investment are also employees of Stifel.
Item 29 -- Principal Underwriters
(a) American Fidelity Securities, Inc. ("AFS"), a wholly-
owned subsidiary of the Company, is the sole underwriter for the
Fund. AFS is also the underwriter for American Fidelity Separate
Account A and American Fidelity Separate Account B.
(b) AFS director and officer information is as follows:
Positions and
Name and Principal Offices with Positions and
Business Address Underwriter Offices with Fund
- ------------------ ------------- -----------------
David R. Carpenter Director, Chairman, None
P. O. Box 25523 President, Chief
Oklahoma City, OK 73125 Executive Officer,
Treasurer, Chief
Financial Officer and
Registered Limited
Principal
Marvin R. Ewy Director, Vice None
P. O. Box 25523 President, Secretary,
Oklahoma City, OK 73125 Chief Compliance
Officer and
Registered Limited
Principal
Nancy K. Steeber Director, Vice None
P.O. Box 25523 President, Operations
Oklahoma City, OK 73125 Officer and
Registered Limited
Principal
(c) Not applicable.
Item 30 -- Location of Accounts and Records
All records relating to the Fund required by Section 31(a)
of the 1940 Act are kept by the Registrant or its custodian at
the following addresses:
American Fidelity Dual Strategy Fund, Inc.
2000 Classen Center
Oklahoma City, Oklahoma 73106
or
InvesTrust, N.A.
6301 N. Western, Suite 210
Oklahoma City, Oklahoma 73118
Item 31 -- Management Services
See -- "Investment Advisory and Other Services" in Part B of
this Registration Statement.
Item 32 -- Undertakings
The Fund hereby undertakes to:
(a) not applicable;
(b) file a post-effective amendment, using financial
statements of the Fund which need not be certified,
within four to six months from the effective date of
the Fund's 1933 Act registration statement; and
(c) to furnish each person to whom a prospectus is
delivered with a copy of its most recent annual report
to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant has duly caused this Pre-Effective
Amendment No. 1 to Registration Statement to be signed on its behalf,
in the City of Oklahoma City, and State of Oklahoma on this 16th day of
October, 1998.
AMERICAN FIDELITY DUAL STRATEGY
FUND, INC.
By JOHN W. REX
John W. Rex, Chairman of the
Board and President
As required by the Securities Act of 1933, this Pre-Effective
Amendment No. 1 to Registration Statement has been signed by the
following persons in the capacities indicated on October 16, 1998.
JOHN W. REX
John W. Rex, Chairman of the Board,
President and Treasurer
DANIEL D. ADAMS, JR.
Daniel D. Adams, Jr., Director and Secretary
JEAN G. GUMERSON*
Jean G. Gumerson, Director
EDWARD C. JOULLIAN, III
Edward C. Joullian, III, Director
GREGORY M. LOVE*
Gregory M. Love, Director
J. DEAN ROBERTSON*
J. Dean Robertson, Director
G. RAINEY WILLIAMS, JR.*
G. Rainey Williams, Jr., Director
_____________________
*By JOHN W. REX
John W. Rex, Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit Description
No. of Exhibit Method of Filing
- ------- ----------- ----------------
1 Articles of Incorporation of Incorporated herein by reference
Registrant.
2 Bylaws of Registrant. Incorporated herein by reference
5.1 Form of Management and Investment Incorporated herein by reference
Advisory Agreement between the
Registrant and American Fidelity
Assurance Company (the "Company").
5.2 Form of Investment Sub-Advisory Incorporated herein by reference
Agreement between the Company and
Lawrence W. Kelly & Associates,
Inc.
5.3 Form of Investment Sub-Advisory Incorporated herein by reference
Agreement between the Company and
Todd Investment Advisors, Inc.
6 Form of Participation Agreement Incorporated herein by reference
between the Registrant and
American First Assurance Company.
8 Form of Corporate Custodial Filed herewith
Agreement between Registrant and electronically
InvesTrust, N.A.
10 Opinion and Consent of Counsel Filed herewith
electronically
13 Agreement and Plan of Reorganiza- Filed herewith
tion dated October 13, 1998 among electronically
Registrant, the Company and
American Fidelity Variable
Annuity Fund A.
16 Schedule for computation of Filed herewith
performance quotations electronically
24 Power of Attorney Incorporated herein by reference
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
CORPORATE CUSTODIAL AGREEMENT
________________________________________________________
ARTICLE I
CREATION OF CUSTODIAL RELATIONSHIP
1.01 AMERICAN FIDELITY DUAL STRATEGY FUND, INC. (hereinafter referred
to as "Principal"), wishes to provide for the safekeeping of certain assets
of Principal, including certificated securities and uncertificated
securities as defined in paragraphs (a) and (b) of subsection (1) of 12A
O.S. <section>8-102 and by federal laws and regulations (hereinafter
collectively referred to as "Securities"), cash and short-term liquid
investments, and other assets (hereinafter referred to as the "Account").
Principal hereby appoints INVESTRUST, N.A. as custodian (hereinafter
referred to as "Custodian") of the Account in accordance with the terms of
this Custodial Agreement (the "Agreement') and agrees to deliver to
Custodian all Securities, cash, assets, and similar investments comprising
the Account.
ARTICLE II
AUTHORIZED PERSONS OF PRINCIPAL
2.01 Principal shall, from time to time, authorize and terminate the
authority of individuals who are either officers or responsible employees
of Principal who shall be empowered to act on behalf of Principal with
respect to the Account by appropriate resolutions of Principal's Board of
Directors. Principal shall designate such individuals as "Authorized
Employees" or "Authorized Signatories" for the purposes specified herein,
but in no event shall Principal designate more than five (5) individuals as
being so authorized. Principal hereby warrants that all persons so
designated shall have authority to act for Principal as further provided in
this Agreement. Attached hereto as Exhibit "A" and Exhibit "B" of this
Agreement are individuals currently designated as Authorized Employees and
Authorized Signatories, respectively.
2.02 Custodian shall permit access, during Custodian's regular
business hours, to assets of the Account held on Custodian's premises and
to Custodian's official records regarding the Account, by Authorized
Employees or Authorized Signatories of Principal as further provided
herein. Access shall be had only by two (2) or more authorized persons
jointly, at least one of whom must be an officer, provided that such
authorized individuals shall be accompanied by an employee of Custodian
during the period of access.
2.03 Access to assets of the Account shall also be provided to
properly authorized officers and employees of Custodian.
2.04 At least three (3) times a year, access to assets of the Account
shall be provided to an independent public accountant retained by
Principal.
2.05 Principal may, from time to time, authorize and terminate the
authority of advisors or sub-advisors empowered to act on behalf of
Principal with respect to buy and sell decisions from and to the Account by
appropriate resolutions of Principal's Board of Directors. Principal shall
designate such advisors or sub-advisors as "Authorized Advisors" for the
purposes specified herein. Principal hereby warrants that all persons so
designated shall have authority to act for Principal in buy and sell
decisions, subject to limitations provided in Paragraph 5.03 of this
Agreement. Attached hereof as Exhibit "C" of this Agreement are entities
currently designated as Authorized Advisors.
ARTICLE III
SAFEKEEPING OF SECURITIES
3.01 Custodian shall in all instances maintain Principal's Securities
and similar investments in accordance with governing law including, but not
limited to, the Oklahoma Insurance Code, as amended from time to time.
Custodian shall maintain Securities in safe-keeping on Custodian's
premises, in a recognized clearing corporation, or in the Federal Reserve
book-entry system.
3.02 Certificated Securities deposited by Principal and held by the
Custodian shall be held separate and physically segregated from the
Securities of the Custodian and of all of its other customers and shall be
in the name of the Principal or a nominee of the Principal or, if in a
clearing corporation, in the name of the clearing corporation or its
nominee.
3.03 Securities held in a fungible bulk by the Custodian as part of a
Filing of Securities by Issue (FOSBI) arrangement and Securities deposited
in a clearing corporation or in the Federal Reserve book-entry system shall
be deposited in an account that includes only assets held by Custodian for
its customers and shall be separately identified on the Custodian's
official records as being owned by the Principal. The Custodian may
deposit the Securities directly or through one or more agents which are
also qualified to act as custodian for investment companies. Custodian's
records shall identify which Securities are held by Custodian or by its
agent and which Securities are in a clearing corporation or in the Federal
Reserve book-entry system. If the Securities are in a clearing corporation
or in the Federal Reserve book-entry system, the records shall also
identify where the Securities are and, if in a clearing corporation, the
name of the clearing corporation and, if through an agent, the name of the
agent. Custodian shall send Principal a confirmation of any transfers to
or from the account of Principal. Where Securities are transferred to that
account, Custodian shall also, by book entry or otherwise, identify as
belonging to Principal a quantity of securities in a fungible bulk of
securities (i) registered in the name of Custodian (or its nominee) or (ii)
shown on Custodian's account on the books of the clearing agency, the book
entry system, or Custodian's agent.
ARTICLE IV
SAFEKEEPING OF ACCOUNT CASH, SHORT-TERM INVESTMENTS, AND OTHER ASSETS
4.01 Custodian shall establish for Principal separate income and cash
accounts in Principal's name which shall be held separate and physically
segregated from other income and cash accounts and shall be invested in
such short-term investment media (such as money market funds, Custodian's
deposit accounts, master notes, registered mutual funds and the like) as
agreed to from time to time by Principal and Custodian. In the event that
cash available in such cash accounts is insufficient to enable Custodian to
execute any instruction made by Principal under this Agreement, Custodian,
in its sole discretion, may treat the instruction as null and void without
any liability for doing so; provided, however, that Custodian shall
promptly orally notify Principal of such insufficiency and shall confirm
such notification by writing mailed within five (5) business days.
4.02 Custodian shall maintain Principal's assets other than
Securities, cash, and short-term investments, separate and physically
segregated from other assets in safekeeping on Custodian's premises subject
to such additional agreements as Principal and Custodian shall make from
time to time.
ARTICLE V
DEPOSITS AND WITHDRAWALS
5.01 Principal may, from time to time, deposit or withdraw Securities
and similar investments, or instruct Custodian to effect such deposits and
withdrawals (including transfers to third persons), by written instructions
signed by at least two (2) Authorized Signatories. Any such deposits,
withdrawals, or instructions to deposit or withdraw Securities or other
investments, shall be documented and signed by each of the Authorized
Employees or Authorized Signatories making such deposit, withdrawal, or
request, and, at the minimum, shall state (a) the date and time of the
deposit or withdrawal, (b) the title and amount of the Securities or
similar investments to be deposited or withdrawn, including identification
by certificate numbers or otherwise, (c) the manner of acquisition of the
securities or similar investments deposited or the purpose of the
withdrawal, and (d) the identity of the person to whom the assets are to be
transferred, or from whom they are to be received, as the case may be.
Such documentation shall be on serially numbered forms and shall be
presented in duplicate to the Custodian, who shall note thereon the time of
receipt and shall mail one (1) copy to an officer or director of Principal
who is not a person designated as an Authorized Employee or Authorized
Signatory within two (2) business days, to serve as a confirmation of
receipt of such instructions. Custodian shall preserve the other copy (in
the original or by microfilm) for not less than five (5) years.
5.02 Principal may, from time to time, instruct Custodian to effect a
deposit of assets to the Account, or a withdrawal of assets from the
Account for transfer (including purchase, sale, or exchange transactions)
solely to or for Principal's account at a federally insured depository
institution or a recognized securities broker, upon oral instructions of
any Authorized Employee. Principal shall confirm such deposit or
withdrawal by written confirmation mailed to Custodian within two (2)
business days of the withdrawal. Such confirmation shall state (a) the
date and time of the deposit or withdrawal, (b) the title and amount of the
Securities or similar investments to be deposited or withdrawn, including
identification by certificate numbers or otherwise, (c) the manner of
acquisition of the securities or similar investments deposited or the
purpose of the withdrawal, and (d) the identity of the person to whom the
assets are to be transferred, or from whom they are to be received, as the
case may be. Custodian shall preserve a copy of such confirmation (in the
original or by microfilm) for not less than five (5) years.
5.03 Custodian shall be authorized to act in response to instructions
given by any Authorized Advisor as to buy/sell decisions regarding
Principal's Securities and similar investments, provided that, in
connection with any buy/sell transaction, Custodian shall release cash from
the Account only upon receipt of purchased securities, and shall release
Securities only upon receipt of funds in payment.
5.04 Custodian is authorized, as provided further herein, to effect
deposits of assets to the Account, and withdrawals of assets from the
Account (including transfers to third persons) which are of a routine or
ministerial nature not requiring the exercise of discretion, as further
described herein. Custodian shall notify Principal of any such deposit or
withdrawal by written notification or account statement.
A. Custodian shall collect and deposit to the Account any assets
(such as stock dividends) received as income, interest,
dividends, distributions and the like on payable date, respecting
assets held in the Account. Custodian shall promptly notify
Principal of any such amounts due but not paid. For all stocks
held in the Account, Custodian shall specifically notify
Principal of all dividends and capital changes (e.g. stock
splits, spin-offs) on or before the "Ex" date, and to the extent
reasonably possible, tax refunds on foreign issues. In addition,
Custodian or its agent shall timely file all the necessary forms
with the appropriate foreign governments, or agencies thereof, in
order to minimize the taxes or withholding taxes on dividend,
interest or other income from Principal's investment in foreign
issues of stock or bonds held by Custodian or agent thereof.
Custodian or its agent shall also timely file the necessary forms
with the appropriate foreign governments, or agencies thereof in
order to obtain all dividend withholding tax rebates allowable
under the current tax treaties with the United States, or in the
absence of a tax treaty, the minimum permitted by the laws of the
respective foreign government of the issuer.
B. Custodian shall charge the Account for all expenses incurred in
carrying out Principal's instructions (including, but not limited
to, brokerage commissions, wire charges, postage, etc.) and for
Custodian's fees.
C. Custodian is authorized to surrender assets upon maturity and in
other situations where such transfer is mandatory. Should any
Securities held in any central depository or in bulk by Custodian
be called for partial redemption by the issuer, Custodian is
authorized in its sole discretion to allot (or consent to the
allotment of) the called portion to the respective holders in any
manner deemed by the Custodian to be fair and equitable.
Custodian shall deposit the proceeds of any such transaction to
the Account.
D. Custodian is authorized to sell any fractional shares received as
a result of a stock split or stock dividend affecting Securities.
Custodian shall deposit the proceeds of any such transaction to
the Account.
5.05 Custodian shall send written confirmation to Principal of all
deposits of assets to the Account and all withdrawals of assets from the
Account (including purchase, sale or exchange transactions) within one (1)
business day of each respective deposit or withdrawal.
5.06 Securities used to meet the deposit requirements set forth in the
Oklahoma Insurance Code (36 O.S. <section>101 et seq.) (the "Code") shall,
to the extent required by the Code, be under the control of the Insurance
Commissioner of the State of Oklahoma or his authorized representative
(hereinafter collectively referred to as the "Commissioner"), and shall not
be withdrawn by Principal without the approval of the Commissioner.
ARTICLE VI
CUSTODIAN'S DUTIES
6.01 Custodian's duties with respect to the Account are intended to be
ministerial only, and Custodian may rely upon, and shall not be liable for
the propriety, prudence, or correctness of, any instruction made by
Principal in accordance with this Agreement. Custodian further agrees that
it shall have no ownership interest in the Account or any assets or
Securities or funds which comprise the Account, or earnings received by it
from any Securities or assets held in the Account, nor does Custodian have
any right of offset or other means of exercising any ownership interest
over the Account and Securities, except and only in its capacity as
Custodian and a bailee for the benefit of the Principal. Custodian shall
forward to Principal or Authorized Advisor, if applicable, all
prospectuses, proxies, official reports, notices and other materials
concerning discretionary management of assets which are received by
Custodian as holder of such assets. Custodian shall not vote proxies, act
on tender offers, or perform other discretionary acts not specifically
authorized by this Agreement without specific instructions from Principal
or Authorized Advisor and shall take whatever action necessary to ensure
that Principal has the opportunity to exercise its voting rights as a
shareholder. Custodian shall be entitled to request instructions from
Principal concerning any matter involving the Account, and Principal agrees
to promptly respond to any such request.
6.02 Custodian shall not assign, hypothecate, pledge, or otherwise
dispose of Securities or other assets deposited by Principal, except
pursuant to instructions by Principal.
6.03 Custodian shall from time to time employ one or more sub-
custodians on behalf of Principal located in the United States, but only
upon being so instructed by Principal's Board of Directors, and provided
that the Custodian shall have no more or less responsibility or liability
to Principal on account of any actions or omissions of any sub-custodian so
employed than any such sub-custodian has to the Custodian.
6.04 Upon receiving instruction from Principal's Board of Directors to
do so, Custodian may employ as sub-custodian for Principal's foreign
securities and other investments, foreign banking institutions and foreign
securities depositories designated by Principal, provided that Principal's
Board of Directors determines that it is reasonable to rely on Custodian to
employ such sub-custodian and Custodian provides written reports notifying
Principal's Board of Directors of the placement of the Account's Securities
and similar investments and of any material change in the Account's
arrangements. Custodian shall exercise reasonable care, prudence, and
diligence, such as a person having responsibility for the safekeeping of
Principal's Securities and similar investments would exercise, or to adhere
to a higher standard of care, in employing such foreign sub-custodian.
6.05 Prior to employing a foreign sub-custodian in accordance with
Section 6.04 above, Custodian shall determine that Principal's assets will
be subject to reasonable care, based on the standards applicable to
custodians in the relevant market, if maintained with the Custodian, after
considering all factors relevant to the safekeeping of Principal's
Securities and similar investments, including, without limitation (a) the
foreign sub-custodian's practices, procedures, and internal controls, (b)
whether the foreign sub-custodian has the requisite financial strength to
provide reasonable care for Account assets, (c) sub-custodian's general
reputation and standing and, in the case of a Securities Depository, as
defined in Rule 17f-5 of the Investment Company Act of 1940, the
depository's operating history and number of participants, and (d) whether
Principal will have jurisdiction over and be able to enforce judgments
against the foreign sub-custodian.
6.06 Prior to employing a foreign sub-custodian in accordance with
Section 6.04 above, Custodian shall enter into a written contract with the
designated foreign sub-custodian that Custodian has determined will provide
reasonable care for Principal's Securities and similar investments. In the
case of a Securities Depository, Custodian's agreement with any sub-
custodians shall be governed by written contract, rules and established
practices or procedures of the depository, or any combination thereof.
6.07 Any contract entered into pursuant to Section 6.06 above, shall
include provisions that provide:
A. For indemnification or insurance arrangements (or any combination
thereof) such that Principal will be adequately protected against
the risk of loss of assets held in accordance with such contract;
B. That Principal's Securities and similar investments will not be
subject to any right, charge, security interest, lien or claim of
any kind in favor of Custodian or sub-custodian or their
creditors, except a claim of payment for safe custody or
administration, or, in the case of cash deposits, liens or rights
in favor of creditors of Custodian or sub-custodian arising under
bankruptcy, insolvency, or similar laws;
C. That beneficial ownership of the Account's assets will be freely
transferable without the payment of money or value other than for
safe custody or administration;
D. That adequate records will be maintained identifying the assets
as belonging to Principal or as being held by a third party for
the benefit of Principal;
E. That Principal's independent public accountants will be given
access to those records for confirmation of the contents of those
records; and
F. That Principal will receive periodic reports with respect to the
safekeeping of Principal's assets, including, but not limited
to, notification of any transfer to or from Principal's account
or a third party account containing assets held for the benefit
of Principal.
Such contract may contain, in lieu of any or all of the provisions
specified in this Section 6.07, such other provisions that Custodian
determines will provide, in their entirety, the same or a greater level of
care and protection for Principal's assets as the specified provisions, in
their entirety.
6.08 Custodian must establish a system to monitor the appropriateness
of maintaining Principal's assets with a foreign sub-custodian as set forth
above, and the sub-custodial contract governing the Principal's
arrangements.
ARTICLE VII
RECORD KEEPING
7.01 Custodian agrees to cooperate with Principal in maintaining
records and supplying reports to Principal, as reasonably needed by
Principal in order to meet Principal's accounting, reporting and regulatory
obligations, including the following obligations:
A. Custodian and its agents shall be required to send to Principal:
(1) on the first business day of each month a report of all the
transactions in the Account during the preceding month and a
listing of all assets held in the Account at the end of the
preceding month;
(2) all reports which they receive from a clearing corporation
or the Federal Reserve book-entry system on their respective
systems of internal accounting control; and
(3) any reports prepared by outside auditors on Custodian's or
its agents' internal accounting control of Securities that
Principal may reasonably request.
B. Custodian shall maintain records sufficient to determine and
verify information relating to Securities that may be reported in
Principal's annual statement and supporting schedules and
information required in any audit of the financial statements of
Principal.
C. Custodian shall provide, upon written request from any of the
Authorized Signatories of the Principal, the appropriate
affidavits, substantially in the form provided in Exhibits "D",
"E" and "F", attached hereto, and made a part hereof, with
respect to the Securities.
ARTICLE VIII
LIABILITY FOR SAFEKEEPING
8.01 Custodian shall be responsible only for assets actually received
by it hereunder. Custodian shall indemnify Principal for any loss of
assets occasioned by the negligence or dishonesty of Custodian's officers
and employees, or burglary, robbery, holdup, theft or mysterious
disappearance, including any loss by damage or destruction. Custodian
shall not be liable in any manner for loss occasioned by failure of
Principal or its officers or employees to comply with this Agreement, by
negligence or dishonesty of Principal or its officers or employees.
Custodian will not be liable for any failure to take any action required to
be taken under this Agreement in the event and to the extent that the
taking of such action is prevented or delayed by war (whether declared or
not and including existing wars), revolution, insurrection, riot, civil
commotion, or act of God, accident, fire, explosion, stoppage of labor,
strikes or other differences with employees, laws, regulations, orders or
other acts of any governmental authority or any other cause whatever beyond
its reasonable control. In the event that there is a loss of Securities,
Custodian shall promptly replace the Securities or the value thereof, and
the value of any loss of rights or privileges resulting from said loss of
Securities. In the event that Custodian obtains entry in a clearing
corporation or in the Federal Reserve book-entry system through an agent,
Custodian shall agree with such agent that the agent shall be subject to
the same liability for loss of Securities as Custodian. Custodian's
responsibility for any asset shall be terminated upon compliance with
Principal's instructions regarding withdrawal, in compliance with
procedures established under this Agreement.
ARTICLE IX
EFFECTIVE PERIOD, TERMINATION, & AMENDMENT
9.01 This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided,
may be amended at any time by mutual agreement of the parties hereto and
may be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect
not sooner than thirty (30) days after the date of such delivery or
mailing; provided, however, that Principal shall not amend or terminate
this Agreement in contravention of any applicable federal or state
regulations, or any provision of Principal's Articles of Incorporation, and
further provided, that Principal may at any time by action of its Board of
Directors (a) substitute another bank or trust company for Custodian by
giving notice as described above to Custodian, or (b) immediately terminate
this Agreement in the event of the appointment of a conservator or receiver
for Custodian by the Comptroller of the Currency or upon the happening of a
like event at the direction of an appropriate regulatory agency or court of
competent jurisdiction.
Upon termination of this Agreement, Principal shall pay to Custodian
such compensation as may be due as of the date of such termination and
shall likewise reimburse Custodian for its costs, expenses and
disbursements.
9.02 Custodian shall not be permitted to assign this Agreement without
the express consent of Principal's Board of Directors.
9.03 If a successor custodian is appointed by Principal's Board of
Directors, Custodian shall, upon termination, deliver to such successor
custodian at the office of Custodian, duly endorsed and in the form for
transfer, all Securities and similar investments of the Account then held
by it hereunder and shall transfer to an account of the successor custodian
all such Securities and similar investments.
9.04 In the event this Agreement is terminated and no successor
custodian appointed, Custodian shall, in like manner, upon receipt of a
certified copy of a vote of Principal's Board of Directors, deliver at the
office of Custodian and transfer such Securities and similar investments in
accordance with such vote.
9.05 In the event that no written order designating a successor
custodian or certified copy of a vote of the Board of Directors shall have
been delivered to Custodian on or before the date when termination of this
Agreement shall become effective, then Custodian shall have the right to
deliver to a bank or trust company, which is a "bank" as defined in the
Investment Company Act of 1940, of its own selection, having aggregate
capital, surplus, and undivided profits, as shown by its last published
report, of not less than $25,000,000, all Securities, funds and other
properties held by Custodian on behalf of Principal and to transfer to an
account of such successor custodian all of the Securities of the Account.
Thereafter, such bank or trust company shall be the successor of Custodian
under this Agreement.
9.06 In the event that Securities, funds, and other properties remain
in the possession of Custodian after the date of termination of the
Agreement owing to failure of Principal to procure the certified copy of
the vote referred to in Section 9.04 above or of the Board of Directors to
appoint a successor custodian, Custodian shall be entitled to fair
compensation for its services during such period as Custodian retains
possession of such Securities, funds and other properties and the
provisions of this Agreement relating to the duties and obligations of the
Custodian shall remain in full force and effect.
ARTICLE X
MISCELLANEOUS
10.01 WARRANTY. Principal warrants that it has authority to enter
into this Agreement and that it has title to and authority to deliver any
property which will be delivered to Custodian, and that all instructions
provided to Custodian hereunder will be within Principal's authority.
10.02 FEES. Custodian's charges for services provided hereunder shall
be such reasonable compensation as is mutually agreed upon from time to
time by Principal and Custodian.
10.03 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Oklahoma.
10.04 SEVERABILITY. In the event that any provision of this Agreement
is held invalid or unenforceable, the remaining provisions shall be
construed to be valid and enforceable nonetheless.
10.05 CAPTIONS. Captions employed in this Agreement are for ease of
reference only and shall not be employed in determining the meaning of any
provision.
10.06 NOTICE. Except where otherwise more specifically provided
herein, notice shall be made in writing by delivery or mail as follows:
IF TO PRINCIPAL:
American Fidelity Dual Strategy Fund, Inc.
Attention: Investment Department
2000 Classen Center
P.O. Box 25523
Oklahoma City, Oklahoma 73125
IF TO CUSTODIAN:
Attention: Carol Hopper
InvesTrust, N.A.
6301 North Western Avenue, Suite 210
Oklahoma City, Oklahoma 73118
IN WITNESS WHEREOF, the parties hereby cause their names to be signed
herein and their seals to be affixed and duly attested by their duly
authorized officers, this ____ day of __________, 1998.
<PAGE>
"PRINCIPAL"
AMERICAN FIDELITY DUAL STRATEGY
FUND, INC.
By:
John W. Rex, Chairman of the Board and
President
"CUSTODIAN"
INVESTRUST, N.A.
By:
<PAGE>
EXHIBIT "A"
AUTHORIZED EMPLOYEES
NAME TITLE
Jo Ann Anderson Vice President
Lucy Fritts Vice President
David R. Carpenter Senior Vice President
Kenneth D. Klehm Senior Vice President
Daniel D. Adams, Jr. Vice President
<PAGE>
EXHIBIT "B"
AUTHORIZED SIGNATORIES
NAME SIGNATURE
Jo Ann Anderson ____________________________
Lucy Fritts ____________________________
David R. Carpenter ____________________________
Kenneth D. Klehm ____________________________
Daniel D. Adams, Jr. ____________________________
<PAGE>
EXHIBIT "C"
AUTHORIZED ADVISORS
Lawrence Kelly & Associates
200 S. Los Robles, Suite 510
Pasadena, CA 91101
(818) 449-9500
Todd Investment Advisors
3160 National City Tower
Louisville, KY 40202
(502) 585-3121
<PAGE>
EXHIBIT "D"
FORM A
CUSTODIAN AFFIDAVIT
_______________________
STATE OF OKLAHOMA )
) SS.
COUNTY OF OKLAHOMA )
________________________________, being duly sworn deposes and says
that he is _________________________________ of INVESTRUST, N.A., a special
purpose bank chartered by the Office of the Comptroller of the Currency
with the principal place of business at ___________________________
(hereinafter called the "Bank").
That his duties involve supervision of activities of the Bank as
custodian and records relating thereto.
That the Bank is custodian for certain securities of AMERICAN FIDELITY
DUAL STRATEGY FUND, INC., having a place of business at Oklahoma City,
Oklahoma (hereinafter called the "Fund"), pursuant to an agreement between
the Bank and the Fund.
That the schedule attached hereto is a true and complete statement of
securities (other than those caused to be deposited with The Depository
Trust Company or like entity or a Federal Reserve Bank under the Federal
Reserve book-entry procedure) which were in the custody of the Bank for the
account of the Fund as of the close of business on
________________________; that, unless otherwise indicated on the schedule,
the next maturing and all subsequent coupons were then either attached to
coupon bonds or in the process of collection; and that, unless otherwise
shown on the schedule, all such securities were in bearer form or in
registered form in the name of the Fund or its nominee or of the Bank or
its nominee, or were in the process of being registered in such form.
That the Bank as custodian has the responsibility for the safekeeping
of such securities as that responsibility is specifically set forth in the
agreement between the Bank as custodian and the Fund; and
That, to the best of his knowledge and belief, unless otherwise shown
on the schedule, said securities were the property of said Fund and were
free of all liens, claims or encumbrances whatsoever.
INVESTRUST, N.A.
By:________________________________
Subscribed and sworn to before me this _______ day of
___________________, 19___.
_____________________________________
Notary Public
My Commission Expires:___________________
(SEAL)
<PAGE>
EXHIBIT "E"
FORM B
CUSTODIAN AFFIDAVIT
_______________________
STATE OF OKLAHOMA )
) SS.
COUNTY OF OKLAHOMA )
________________________________, being duly sworn deposes and says
that he is _________________________________ of INVESTRUST, N.A., a
special purpose bankchartered by the Office of the Comptroller of the
Currency with the principal place of business at
___________________________ (hereinafter called the "Bank").
That his duties involve supervision of activities of the Bank as
custodian and records relating thereto.
That the Bank is custodian for certain securities of AMERICAN FIDELITY
DUAL STRATEGY FUND, INC., having a place of business at Oklahoma City,
Oklahoma (hereinafter called the "Fund"), pursuant to an agreement between
the Bank and the Fund.
That the Bank has caused certain of such securities to be deposited
with _________________________________ and that the schedule attached
hereto is a true and complete statement of the securities of the Fund of
which the Bank was custodian as of the close of business on
________________________, 19____, and which were so deposited on such date.
That the Bank as custodian has the responsibility for the safekeeping
of such securities both in the possession of the Bank or deposited with
______________________________ as is specifically set forth in the
agreement between the Bank as custodian and the Fund; and
<PAGE>
That, to the best of his knowledge and belief, unless otherwise shown
on the schedule, said securities were the property of said Fund and were
free of all liens, claims or encumbrances whatsoever.
INVESTRUST, N.A.
By: _____________________________________
Subscribed and sworn to before me this _______ day of
___________________, 19___.
_____________________________________
Notary Public
My Commission Expires:__________________
(SEAL)
<PAGE>
EXHIBIT "F"
FORM C
CUSTODIAN AFFIDAVIT
_______________________
STATE OF OKLAHOMA )
) SS.
COUNTY OF OKLAHOMA )
________________________________, being duly sworn deposes and says
that he is _________________________________ of INVESTRUST, N.A., a special
purpose bankchartered by the Office of the Comptroller of the Currency with
the principal place of business at ___________________________ (hereinafter
called the "Bank").
That his duties involve supervision of activities of the Bank as
custodian and records relating thereto.
That the Bank is custodian for certain securities of AMERICAN FIDELITY
DUAL STRATEGY FUND, INC., having a place of business at Oklahoma City,
Oklahoma (hereinafter called the "Fund"), pursuant to an agreement between
the Bank and the Fund.
That it has caused certain securities to be credited to its book-entry
account with the Federal Reserve Bank of ___________________________ under
the Federal Reserve book-entry procedure; and that the schedule attached
hereto is a true and complete statement of the securities of the Fund of
which the Bank was custodian as of the close of business on
_______________________, 19___, which were in a "General" book-entry
account maintained in the name of the Bank on the books and records of the
Federal Reserve Bank of ________________________ at such date;
That the Bank has the responsibility for the safekeeping of such
securities both in the possession of the Bank or said "General" book-entry
account as is specifically set forth in the agreement between the Bank and
the Fund; and
That, to the best of his knowledge and belief, unless otherwise shown
on the schedule, said securities were the property of said Fund and were
free of all liens, claims or encumbrances whatsoever.
INVESTRUST, N.A.
By: _____________________________________
Subscribed and sworn to before me this _______ day of
___________________, 19___.
_____________________________________
Notary Public
My Commission Expires:__________________
(SEAL)
LAW OFFICES
MCAFEE & TAFT
A PROFESSIONAL CORPORATION
TENTH FLOOR, TWO LEADERSHIP SQUARE
211 NORTH ROBINSON
OKLAHOMA CITY, OKLAHOMA 73102-7103
(405) 235-9621
FAX (405) 235-0439
E-Mail: [email protected]
http://www.mcafee-taft.com
October 16, 1998
American Fidelity Dual Strategy Fund, Inc.
2000 Classen Center
Oklahoma City, Oklahoma 73106
Re: Registration Statement on Form N-1A
Ladies and Gentlemen:
You have requested that we advise you with respect to the
legality of the shares (the "Shares") of common stock of American Fidelity
Dual Strategy Fund, Inc. (the "Fund") being registered under its
Registration Statement on Form N-1A (Nos. 333-59185 and 811-08873). In
rendering the opinion expressed below, we have conducted such investigation
and examined such documents as we deemed appropriate.
Based upon the foregoing, it is our opinion that:
(1) The Fund is duly incorporated and validly existing under the
laws of the State of Maryland.
(2) The Shares have been duly authorized and, when issued as
provided in the Registration Statement, will be legally issued, fully paid
and nonassessable.
This opinion is being furnished to you solely for use in Pre-
Effective Amendment No. 1 to the Registration Statement, and we hereby
consent to its use therein and to the reference to our name under the
caption "Custodian, Independent Accountants and Counsel" in the Statement
of Additional Information included in the Registration Statement.
Very truly yours,
MCAFEE & TAFT
A PROFESSIONAL CORPORATION
McAfee & Taft
A Professional Corporation
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement")
is entered into this 13th day of October, 1998, by and among
American Fidelity Assurance Company ("American Fidelity"), a
stock life insurance company organized and existing under the
laws of the State of Oklahoma, American Fidelity Variable
Annuity Fund A ("Account A"), a managed separate account
organized under the insurance laws of the State of Oklahoma, and
American Fidelity Dual Strategy Fund, Inc. (the "Fund"), a
corporation organized and existing under the laws of the State of
Maryland.
WHEREAS, Account A is registered with the Securities and
Exchange Commission (the "Commission") as an open-end diversified
management investment company under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, Account A is managed by a Board of Managers and has
the primary investment objective of long-term capital growth;
WHEREAS, Account A currently funds group variable annuity
contracts ("Contracts") issued by American Fidelity;
WHEREAS, Account A has offered and sold Contracts and
accepted premium payments with respect to outstanding Contracts
pursuant to a registration statement on Form N-3 filed under the
1940 Act and the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, American Fidelity is the investment adviser to
Account A;
WHEREAS, the Fund is a newly formed Maryland corporation and
is in registration with the Commission as an open-end diversified
management investment company under the 1940 Act;
WHEREAS, the Fund, to the extent permitted by the 1940 Act,
will serve as an investment vehicle for variable annuities issued
by American Fidelity;
WHEREAS, pursuant to this Agreement, Account A will transfer
its portfolio assets to the Fund and be converted into a unit
investment trust ("Continuing Account A") (the "Reorganization");
WHEREAS, following the Reorganization, Continuing Account A
will be a passive investment vehicle with no Board of Managers,
no investment adviser and no active portfolio of investments, but
will invest exclusively in shares of the Fund;
WHEREAS, following the Reorganization, the Fund will have
the same investment objectives, substantially the same investment
policies and restrictions, the same Board membership, and the
same investment adviser and sub-advisers as Account A had prior
to the Reorganization;
WHEREAS, the Board of Managers of Account A (the "Board"),
including those members who are not "interested persons" within
the meaning of Section 2(a)(19) of the 1940 Act, has considered
and approved the participation of Account A in the Reorganization
contemplated by this Agreement, based on its finding that such
participation would be in the best interests of Account A and
would not result in the dilution of the interests of owners of
Contracts ("Contract Owners");
WHEREAS, the Board of Directors of the Fund, including those
directors who are not "interested persons" within the meaning of
Section 2(a)(19) of the 1940 Act, has considered and approved the
participation of the Fund in the Reorganization, based on its
finding that such participation would be in the best interests of
the Fund and would not result in the dilution of the interests of
any Contract Owners; and
WHEREAS, this Agreement is conditioned upon approval of the
Reorganization by majority vote, as defined in the 1940 Act and
rules thereunder, of the Contract Owners of Account A at a
meeting called for that purpose, or any adjournments thereof;
NOW, THEREFORE, in consideration of the mutual promises made
herein, the parties hereto agree as follows:
ARTICLE I
Closing Date
Section 1.01 The Reorganization shall be effective on
January 1, 1999, or at such other date as may be mutually agreed
upon by all parties to this Agreement (the "Closing Date"). The
time on the Closing Date as of which the Reorganization is
consummated is referred to hereinafter as the "Effective Time."
Section 1.02 The parties agree to use their best efforts to
obtain all regulatory and Contract Owner approvals and perform
all other acts necessary or desirable to complete the
Reorganization as of the Closing Date.
ARTICLE II
Reorganization Transactions
Section 2.01 As of the Effective Time, American Fidelity,
on behalf of Account A, will sell, assign and transfer all cash,
securities and other investments held or in transit, receivables
for sold investments and dividend and interest receivables
("portfolio assets") of Account A to the Fund, the portfolio
assets to be held as the property of the Fund.
Section 2.02 In exchange for the portfolio assets of
Account A, the Fund will issue shares to American Fidelity for
the account of Continuing Account A and will assume any
unsatisfied liabilities incurred by Account A before the
Effective Time, including obligations to pay for securities or
other investments purchased and to pay accrued management and
investment advisory fees. The number of full and fractional
shares of the Fund to be issued in the exchange shall be determined
by dividing the value of the net assets of Account A to be trans-
ferred, as of the close of trading on the first business day
preceding the Closing Date, by the initial share value assigned to
the shares of the Fund.
Section 2.03 As of the Effective Time, American Fidelity
shall cause the shares it receives from the Fund, pursuant to
Section 2.02 above, to be duly and validly recorded and held on
its records as assets of Continuing Account A, such that the
Contract Owners' interests in Continuing Account A after the
Closing Date will then be equivalent to their interests in
Account A immediately prior to the Reorganization. American
Fidelity shall take all action necessary to ensure such interests
in Continuing Account A, immediately following the Effective
Time, are duly and validly recorded on the Contract Owners'
and participants' individual account records.
Section 2.04 The Fund shares to be issued hereunder shall
be issued in open account form by book entry without the issuance
of certificates. Each share that is issued pursuant to Section
2.02 above will be issued for a consideration equal to the
initial value of Fund shares.
Section 2.05 If, at any time after the Closing Date,
Continuing Account A, the Fund or American Fidelity shall
determine that any further conveyance, assignment, documentation
or action is necessary or desirable to complete the
Reorganization contemplated by this Agreement or to confirm full
title to the assets transferred, the appropriate party or parties
shall execute and deliver all such instruments and take all such
actions.
Section 2.06 Following the Closing Date, American Fidelity
shall make available to the Account A Contract Owners a contract
endorsement which shall provide for investments in the Fund.
This endorsement shall be made available to Contract Owners as
regulatory authority is obtained.
Section 2.07 Following the Closing Date, American Fidelity
shall reimburse Contract Owners to the extent that they are
charged indirectly Fund expenses (investment management fees plus
other operating expenses) at a rate that exceeds the rate at
which such expenses would have been charged to them by Account A
had there been no Reorganization. Such reimbursement shall not
apply to any federal income tax if the Fund fails to qualify as a
"regulated investment company" under the applicable provisions of
the Internal Revenue Code, or to any charge for American
Fidelity's federal income taxes attributable to the Contracts,
provided American Fidelity has reserved in the Contracts the
right to charge Contract Owners for such taxes.
ARTICLE III
Warranties and Conditions
Section 3.01 Account A, American Fidelity and the Fund, as
appropriate, make the following representations and warranties,
which shall survive the Closing Date and bind their respective
successors and assigns, including Continuing Account A:
(a) There are no suits, actions or proceedings
pending or threatened against any party to this
Agreement which, to its knowledge, if adversely
determined, would materially and adversely affect its
financial condition, the conduct of its business or its
ability to carry out its obligations hereunder;
(b) There are no investigations or administrative
proceedings by the Commission or by any insurance or
securities regulatory body of any state, territory or
the District of Columbia pending against any party to
this Agreement which, to its knowledge, would lead to
any suit, action or proceeding that would materially
and adversely affect its financial condition, the
conduct of its business or its ability to carry out its
obligations hereunder;
(c) Should any party to this Agreement become
aware, prior to the Effective Time, of any suit, action
or proceeding, of the types described in paragraph (a)
or (b) above, instituted or commenced against it, it
shall immediately notify and advise all other parties
to this Agreement;
(d) Immediately prior to the Effective Time,
American Fidelity, on behalf of Account A, shall have
valid and unencumbered title to the portfolio assets of
Account A, except with respect to those assets for
which payment has not yet been made;
(e) Each party shall make available all
information concerning itself which may be required in
any application, registration statement or other filing
with a governmental body to be made by the Fund,
American Fidelity or Account A, or any or all of them,
in connection with any of the transactions contemplated
by this Agreement and shall join in all such
applications or filings, subject to reasonable approval
of their counsel. Each party represents and warrants
that all of such information so furnished shall be
correct in all material respects and that it shall not
omit any material fact required to be stated therein or
necessary in order to make the statements therein not
misleading; and
(f) Other than with respect to contracts entered
into in connection with the portfolio management of
Account A which shall terminate on or prior to the
Closing Date, no party is currently engaged, and the
execution, delivery and performance of this Agreement
by each party will not result, in a material violation
of any such party's charter, by-laws, or any material
agreement, indenture, instrument, contract, lease or
other undertaking to which such party is bound, and to
such party's knowledge, the execution, delivery and
performance of this Agreement will not result in the
acceleration of any obligation, or the imposition of
any penalty, under any material agreement, indenture,
instrument, contract, lease, judgment or decree to
which any such party may be a party or to which it is
bound.
Section 3.02 The obligations of the parties hereunder shall
be subject to satisfaction of each of the following conditions:
(a) The representations contained herein shall be
true as of and at the Effective Time with the same
effect as though made at such time, and such parties
shall have performed all obligations required by this
Agreement to be performed by each of them prior to such
time;
(b) The Commission shall not have issued an
unfavorable advisory report under Section 25(b) of the
1940 Act nor instituted any proceeding seeking to
enjoin consummation of the Reorganization contemplated
hereby;
(c) The appropriate parties shall have received
orders from the Commission providing such exemptions
and approvals as they and their counsel reasonably deem
necessary, including an order pursuant to Section 17(b)
of the 1940 Act, and shall have made all necessary
filings, if any, with, and received all necessary
approvals from, state securities or insurance
authorities;
(d) Account A and the Fund shall have filed with
the Commission a registration statement on Form N-14
under the 1933 Act, and such amendments thereto as may
be necessary or desirable for the registration of the
shares issued by the Fund to Continuing Account A in
exchange for Account A's investment portfolio and for
the registration of the separate account interests in
Continuing Account A to Contract Owners in exchange for
the outstanding securities of Account A held by the
Contract Owners, thereby effecting the purposes of the
Reorganization; provided, however, such filing shall not
be required if counsel to Account A and the Fund determine
that registration on Form N-14 is not necessary in
accordance with advice of the staff of the Commission with
respect to conversion transactions similar to the
Reorganization.
(e) The Fund shall have filed a notification of
registration on Form N-8A under the 1940 Act, a
registration statement on Form N-1A under the 1933 Act
and the 1940 Act, and such amendments thereto as may be
necessary or desirable to effect the purposes of the
Reorganization;
(f) On behalf of Account A, American Fidelity
shall have filed on Form N-4 a post-effective amendment
to the registration statement of Account A under the
1933 Act and the 1940 Act, and such amendments thereto
as may be necessary or desirable to effect the purposes
of the Reorganization;
(g) The appropriate parties shall have taken all
actions necessary for the filings required by
paragraphs 3.02(d) through (f) to become effective, and
no reason shall be known by the parties which would
prevent such filings from becoming effective in a
timely manner;
(h) At a Contract Owners' meeting called for such
purpose (or any adjournments thereof), a majority of
the outstanding voting securities (as defined in the
1940 Act and the rules thereunder) of Account A shall
have voted in favor of approving this Agreement and the
Reorganization;
(i) The Board of Directors of the Fund shall have
taken the following actions:
(1) approve this Agreement and the
Reorganization;
(2) approve the investment advisory
agreement between the Fund and American
Fidelity;
(3) approve the investment sub-advisory
agreements with each of Lawrence W. Kelly &
Associates, Inc. and Todd Investment Advisors,
Inc. with respect to sub-advisory services for
the Fund;
(4) approve investment objectives,
policies and restrictions for the Fund that
are substantially identical to the investment
objectives, policies and restrictions of
Account A as in effect immediately prior to
the Reorganization (which may include changes
approved at the Contract Owners' meeting
referred to above); and
(5) authorize the issuance on the
Closing Date by the Fund of its shares at the
initial net asset value per share in exchange
for the portfolio assets of Account A, as
contemplated by this Agreement;
(j) American Fidelity and Account A shall have
received an opinion of counsel to the Fund (who may be
the same as counsel to American Fidelity and Account A)
in form and substance reasonably satisfactory to them
to the effect that, as of the Closing Date:
(1) the Fund is duly incorporated and
in good standing under the laws of the State
of Maryland;
(2) the Fund is authorized to issue
shares for the purposes contemplated by this
Agreement and is duly registered as an
investment company under the 1940 Act;
(3) the shares of the Fund to be issued
pursuant to the terms of this Agreement have
been duly authorized and, when issued and
delivered as provided herein, will be validly
issued, fully paid and non-assessable;
(4) all corporate and other proceedings
necessary and required to be taken by or on
the part of the Fund to authorize and carry
out this Agreement and effect the
Reorganization have been duly and properly
taken; and
(5) this Agreement is a valid
obligation of the Fund and legally binding
upon it in accordance with its terms;
(k) The Fund and Account A shall have received an
opinion from counsel to American Fidelity (who may be
the same as counsel to the Fund and Account A) in form
and substance reasonably satisfactory to them to the
effect that, as of the Closing Date:
(1) American Fidelity is duly
incorporated and in good standing under the
laws of the State of Oklahoma and is fully
empowered and qualified to carry out its
business in all jurisdictions where it does
so, including to enter into this Agreement
and effect the transactions contemplated
hereby;
(2) all corporate and other proceedings
necessary and required to be taken by or on
the part of Account A and American Fidelity
to authorize and carry out this Agreement and
to effect the Reorganization have been duly
and properly taken; and
(3) this Agreement is a valid
obligation of American Fidelity and Account A
and legally binding upon them in accordance
with its terms;
(l) American Fidelity shall have received an
opinion of counsel that the Reorganization will have no
adverse tax consequences on any of the parties or on
Contract Owners; and
(m) Each party shall have furnished as reasonably
requested by any other party, other legal opinions,
officers' certificates, incumbency certificates,
certified copies of board and committee resolutions,
good standing certificates, and other closing
documentation as may be appropriate for a transaction
of this type.
ARTICLE IV
Costs
Section 4.01 American Fidelity shall bear all expenses in
connection with effecting the Reorganization contemplated by this
Agreement, including, without limitation, preparation and filing
of registration statements and applications and amendments on
behalf of any and all parties hereto, and all legal, accounting
and data processing services necessary to effect the
Reorganization.
ARTICLE V
Termination
Section 5.01 This Agreement may be terminated and the
Reorganization abandoned at any time prior to the Effective Time,
notwithstanding approval by Contract Owners,
(a) by mutual consent of the parties hereto;
(b) by any of the parties if any condition set
forth in Section 3.02 has not been fulfilled by the
other parties; and
(c) by any of the parties if the Reorganization
does not occur as of March 31, 1999, and no
subsequent date can be mutually agreed upon.
Section 5.02 At any time prior to the Effective Time, any
of the terms or conditions of this Agreement may be waived by the
party or parties entitled to the benefit thereof if such waiver
will not have a material adverse effect on the interests of the
Contract Owners.
IN WITNESS WHEREOF, as of the day and year first above
written, each of the parties has caused this Agreement to be
executed on its behalf by its President or Chairman and attested
by its Secretary, all thereunto duly authorized.
ATTEST: AMERICAN FIDELITY ASSURANCE
COMPANY
By STEPHEN P. GARRETT By JOHN W. REX
Stephen P. Garrett, Secretary John W. Rex, President
ATTEST: AMERICAN FIDELITY VARIABLE
ANNUITY FUND A
By DANIEL D. ADAMS, JR. By JOHN W. REX
Daniel D. Adams, Jr., Secretary John W. Rex, Chairman
ATTEST: AMERICAN FIDELITY DUAL
STRATEGY FUND, INC.
By DANIEL D. ADAMS, JR. By JOHN W. REX
Daniel D. Adams, Jr., Secretary John W. Rex, President
Schedule of Computations for Each Performance Quotation Provided in the
Registration Statement
<TABLE>
<CAPTION>
FOR PERIOD ENDED JUNE 30, 1998
----------------------------------------
ONE YEAR FIVE YEAR TEN YEAR
TOTAL RETURN TOTAL RETURN TOTAL RETURN
<S> <C> <C> <C>
(1) TOTAL RETURN
(A) NET INITIAL INVESTMENT $1,000.00 $1,000.00 $1,000.00
divided by / / /
NET ASSET VALUE ON PURCHASE DATE $19.3305 $9.4371 $4.9974
equals = = =
NUMBER OF SHARES PURCHASED 51.73 105.96 200.10
(B) NET ASSET VALUE AT THE END OF
TIME PERIOD $24.8390 $24.8390 $24.8390
multipied by x x x
NUMBER OF SHARES PURCHASED 51.73 105.96 200.10
equals = = =
ENDING VALUE $1,284.92 $2,631.94 $4,970.28
(C) ENDING VALUE $1,284.92 $2,631.94 $4,970.28
minus - - -
INITIAL INVESTMENT $1,000.00 $1,000.00 $1,000.00
equals = = =
TOTAL DOLLAR RETURN $284.92 $1,631.94 $3,970.28
(D) TOTAL DOLLAR RETURN $284.92 $1,631.94 $3,970.28
divided by / / /
INITIAL INVESTMENT $1,000.00 $1,000.00 $1,000.00
multipied by 100 x x x
100 100 100
equals = = =
TOTAL RETURN FOR THE PERIOD
EXPRESSED AS A PERCENTAGE 28.49% 163.19% 397.03%
</TABLE>
(2) AVERAGE ANNUAL TOTAL RETURN
Average annual total return quotations for the one, five and ten year
periods ended 30-Jun-98 are computed using the formula below:
P ( 1 + T )*n = ERV
Where P = a hypothetical initial investment of $1,000
T = average annual total return
* = to the power of
n = number of years
ERV = ending value of a hypothetical $1,000 investment as of the end
of the one, five and ten year periods computed in accordance
with the formula shown in (1) above.
Thus:
ONE YEAR AVERAGE FIVE YEAR AVERAGE TEN YEAR AVERAGE
ANNUAL RETURN ANNUAL RETURN ANNUAL RETURN
1 5 10
$1,000 (1+T)=$1,284.92 $1,000 (1+T)=$2,631.94 $1,000 (1+T)=$4,970.28
T = 28.49% T = 21.35% T = 17.39%
